BSV?

[Bonafede]

Hi All,

I'm writing to see what you all think of BSV as an option for the Cash portion of the PP. From what I can tell, the key difference between this and SHY is the avg years to maturity (1-5 vs 1-3), and of course how much is held in Treasuries versus Corporate etc.

However, it seems like it might be a possible alternative and compatible with the PP. I'm asking as I primarily use Vanguard, and I'm trying to consolidate, simplify things on my end as much as possible.

Any thoughts?

Thanks!

-b

P.S. This forum is great!

P.

[Pkg Man]

Using SHY is already a modification of the original HB design, as Browne recommended using T-bills or a money market fund that invests in T-bills, although it is one that I myself use for half the cash portion.  The fact that the fund invests in corporates, which have default risk, and has longer average duration bonds (2.8 vs 1.95 years) would make me very leery of using it.

I understand the convenience of a one-stop shop, I have my investments spread among five sources, so I don't think it will be too much trouble to have two investment vehicles. 

[craigr]

BSV is a short term bond fund that invests in a mix of bonds. You only want to hold Treasuries for the Permanent Portfolio because they have no credit or call risk like other bonds. So this would not be a good fund choice.

Generally I recommend you hold a year's worth of cash first in a solid Treasury Money Market fund or perhaps the iShares very short term treasury ETF SHV. Then, if you want to take some small additional risk for some small additional return, you can consider buying a high quality treasury short term bond fund with maturities in the 1-3 year range. Something like the iShares Short Term Treasury 1-3 year (SHY) or Vanguard Short Term Treasury (which is not as good as it is not 100% Treasury bonds all the time, but may be a good substitute if you want to just stick to Vanguard).

So if you want to stick to Vanguard I'd use the VFISX in lieu of the Treasury Money Market which is currently closed. Realize that there is slight extra interest rate risk in doing this. Overall the risk is quite small and even if NAV should be affected by rising rates if you just wait it out it will rise back up again.

[Pkg Man]

Generally I recommend you hold a year's worth of cash first in a solid Treasury Money Market fund or perhaps the iShares very short term treasury ETF SHV

craigr what is your take on I and EE bonds?  I know MediumTex is a big proponent, at least of the I bonds.  If one eases into them so that the one-year holding period is not a binding constraint I think that I's and EE's would be a good alternative to SHV, particularly since they currently yield more.  For a taxable account I think this might be better than SHV since the interest can be deferred until redemption.  I think that it is important to also have access to cash outside of a 401K or IRA in case of emergency.

Did the subject of I and EE bonds ever came up with HB?  I have listened to his shows and don't recall it being discussed.

[Bonafede]

Thanks for the feedback. Exactly what I was hoping to learn. And great points on the other options. I think I'm leaning more towards going outside Vanguard. Thanks again, and definitely a great forum CraigR...as well as all the other posters. Keep on learning!!

[craigr]

Generally I recommend you hold a year's worth of cash first in a solid Treasury Money Market fund or perhaps the iShares very short term treasury ETF SHV

craigr what is your take on I and EE bonds?  I know MediumTex is a big proponent, at least of the I bonds.  If one eases into them so that the one-year holding period is not a binding constraint I think that I's and EE's would be a good alternative to SHV, particularly since they currently yield more.  For a taxable account I think this might be better than SHV since the interest can be deferred until redemption.  I think that it is important to also have access to cash outside of a 401K or IRA in case of emergency.

They could be a good option. Honestly I just haven't looked into them that closely (but probably should). I-Bonds have limits on yearly purchases so those with larger cash holdings could have problems.

I also agree about having some cash outside the IRA/401(k) for emergencies.

Did the subject of I and EE bonds ever came up with HB?  I have listened to his shows and don't recall it being discussed.

Not that I recall.

I think though they fall into a usable category because they are US Govt. issues that are very liquid. For the cash portion you just want to make sure that you are not introducing significant interest rate risk into the equation. You also want to absolutely avoid all types of credit risk in your cash and LT bonds.