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Re: Best current options for cash and STT's?

Posted: Wed Sep 09, 2020 7:16 am
by mathjak107
fund families have cut expenses on money markets to keep the value at 1 dollar ... i don't think the t-bill etf's are doing any expense cutting

Re: Best current options for cash and STT's?

Posted: Wed Sep 09, 2020 7:36 am
by sophie
I had that same experience with Treasury ETFs. They're not pegged to the dollar like money market funds, so yes you can lose money even in short-term funds. I got out of the ones I had a couple years ago for that very reason - you don't want to be taking even small risks with your cash!

I know my money is not going anywhere in those 0% Treasury MM's, but that works both ways and I'll take it. The PP is doing fine without those interest earnings, so you don't need them. Meanwhile...I might end up buying my first EE bonds later this year. I already got my I-bonds in January, luckily (0.1% fixed rate, hooray!).

Re: Best current options for cash and STT's?

Posted: Wed Sep 09, 2020 9:48 am
by PrimalToker
What happens when SHV yields less than the ER? Do the fees start eating away at your cash? I have been looking to see if ETF's do the same as MM and cut or waive their expenses but I haven't found any info saying they do...

Re: Best current options for cash and STT's?

Posted: Wed Sep 09, 2020 10:37 am
by Kevin K.
PrimalToker wrote:
Wed Sep 09, 2020 9:48 am
What happens when SHV yields less than the ER? Do the fees start eating away at your cash? I have been looking to see if ETF's do the same as MM and cut or waive their expenses but I haven't found any info saying they do...
SHV has an ER of .15% - so yes, higher than the yield of its component bonds at this point and no they don't waive their expenses.

I have a large chunk of my "cash" allocation in Schwab's Short-Term Treasury Bond fund SCHO and the Vanguard equivalent VGSH. Both have rock-bottom .05% ER's but I'm in the read for the year on both due to recent upticks in interest rates. Just goes to show the stock advice (in the PP book and often on these forums) that holding much of one's cash in STT's rather than a Treasury MM account generating higher returns doesn't hold up in this unprecedented interest rate environment.

My personal take on best (or at least less bad) options at the moment is:

1. Buy your max $10,000 per SSN in iBonds every year (best deal going on cash by far).
2. Buy 6-12 month CDs paying .60-.80% up to the FDIC/NCUA limit of 250K if you have access to them through Navy Federal Credit Union, Ally Bank or other online options (not worth the hassle of opening an account unless you have huge amounts of cash to invest).
3. Buy 3 and 6 month T-bills at auction in your brokerage account and roll them over, or if you can't be bothered and have a Vanguard account buy their Treasury MM account (VUSXX - 50K minimum) and earn a secure 0% interest while we ride this out.

I don't blame folks who are putting 10-25% of their cash into short-term corporate bond funds figuring that the Fed's backstopping of their constituent securities is a free ride but that's a very un-PP thing to do and has no appeal to me personally.

I do think though that we have entered a phase where it makes sense to heed the cliché "take your risk on the equity side" (obviously this means equities plus gold for PP/GB fans). No yields on safe cash and little upside and infinite downside for LTT's.

Re: Best current options for cash and STT's?

Posted: Wed Sep 09, 2020 11:16 am
by jhogue
I think it is more than a cliché to advise PP investors to take their risk in equities, not Cash. With three out of the four assets in positive territory year to date, it is practically a given that Cash is the worst yielding asset.

As a matter of fact, I wonder if there has ever been a period where all four assets were simultaneously up?

Re: Best current options for cash and STT's?

Posted: Wed Sep 09, 2020 1:31 pm
by sophie
A note on Treasury-only money markets: they are all closed to new investors, so if you don't already have it set up, you'll have to wait a few years to jump in. Also, VUSXX (Vanguard's Treasury MM) had a $50K minimum initial investment. Fidelity (FDLXX) dropped its $25K minimum a year or two ago, but I imagine they will reinstate it when the fund reopens.

If Treasury MM's are not an option, I would do 4 week T bills on autoroll. 6-12 month bank CDs or 1 year T bills are not a bad idea but the extra amount you get, after taxes, probably isn't worth the bother. I would sooner max out I and EE bonds.

Re: Best current options for cash and STT's?

Posted: Wed Sep 09, 2020 2:48 pm
by Kevin K.
sophie wrote:
Wed Sep 09, 2020 1:31 pm
A note on Treasury-only money markets: they are all closed to new investors, so if you don't already have it set up, you'll have to wait a few years to jump in. Also, VUSXX (Vanguard's Treasury MM) had a $50K minimum initial investment. Fidelity (FDLXX) dropped its $25K minimum a year or two ago, but I imagine they will reinstate it when the fund reopens.

If Treasury MM's are not an option, I would do 4 week T bills on autoroll. 6-12 month bank CDs or 1 year T bills are not a bad idea but the extra amount you get, after taxes, probably isn't worth the bother. I would sooner max out I and EE bonds.
Hi Sophie!

You must not have seen the latest MM fund news from Vanguard:

https://investornews.vanguard/changes-t ... nd-lineup/

IMHO their decision to switch what used to be Prime MM fund just underlines how much turmoil and instability they see in the financial system. It's almost like their fixed income guys started reading Harry Browne.

And the Treasury MM fund is open again to new investors, albeit with the 50K minimum still intact.

I don't know about other brokerages but Vanguard and Schwab don't do autoroll on Treasuries anymore. But your suggestion of just doing 6-12 month ones and or CDs is a great one and it's not much work to just put the due dates in one's calendar.

Re: Best current options for cash and STT's?

Posted: Thu Sep 10, 2020 7:13 am
by sophie
Wow that is news I missed. Thanks Kevin. And Fidelity’s treasury MM is open too!! With no minimum to open.

I’m sticking with this instead of the CD or 6 month T bill option. I want dry powder to pounce on stocks or bonds if they drop. And the measly 0.6% interest after taxes isn’t worth the bother for me. Maybe for someone in a low tax bracket with no state tax.

Re: Best current options for cash and STT's?

Posted: Thu Sep 10, 2020 9:19 am
by jhogue
EE Bonds look like a terrific current buy at 3.53% yield, but it requires holding them for 20 years. For that reason, I would only consider them after I had bought my full quota of I Bonds for the year-- and in conjunction with an explicit liability matching strategy.

I bonds really are uniquely positioned right now. They are the only Treasury-issued security that provide protection against both inflation and deflation. I normally think of them as Deep Cash, but right now, with a 1.06% yield, they can work as a short term investment too.

For safe and liquid Cash, I think the current best of a bad lot is FDLXX. It does not fluctuate in principal value, unlike short term Treasury ETFs, it has recently re-opened to new investors, and it has no minimum (currently). On the other hand, I still think that Fidelity is acting like a gang of pirates by failing to reduce its ridiculous expense ratio of 0.42%.

Re: Best current options for cash and STT's?

Posted: Thu Sep 10, 2020 9:44 am
by Kevin K.
I agree 100% about the iBonds.

Vanguard's VUSXX has an ER of .09%, and while I haven't tried my luck with this a bunch of Bogleheads report that while you have to invest 50K to buy it you can take substantial amounts out after doing so without being booted out of the fund. Schwab's pure Treasury MM fund SNSXX has an ER of .35%. Of course this is part of a much broader issue that really separates Vanguard (with all its flaws) from other brokerages that make much of their money by steering investors into portfolios with too much cash and gouging them on sweep account money. Vanguard as the only truly mutual mutual fund company doesn't have to earn a return for anyone but the mutual fund investors who own it. That said I appreciate the superior customer service and website at Schwab, and I understand Fido is as good or better.

I'm going to go with 6 and 12 month T-bills myself and exit my short term treasury ETF positions when I can do so at or near breakeven.

Re: Best current options for cash and STT's?

Posted: Fri Sep 11, 2020 5:18 pm
by jhogue
I think your VUSXX/ STTs/ I-bonds formula will work out well for you.

My target Cash position, consisting of equal parts FDLXX/ 1 yr. T-bills/ I-Bonds, is very similar. Over the past year I have stopped buying T-bills and shifted toward FDLXX/ 0 / I-bonds as T-bill yields have fallen to close to 0%.

Whenever I get the itch to reach for more yield, I remind myself that my overall portfolio has, year to date, gained a very healthy 16% return (nominal). Safety and Liquidity should always come before Yield. It does seem that the rest of the portfolio has made up for our current brush with negative interest rates in Cash.