best etf for cash?

Discussion of the Cash portion of the Permanent Portfolio

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chesser
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best etf for cash?

Post by chesser » Wed Jun 04, 2014 7:48 pm

aside from getting into to 1-3 yr treasuries, I know of shv being used
is this considered the best in this category?

and for treasury bills, what is the recommendation for duration?

thanks
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Re: best etf for cash?

Post by Ad Orientem » Thu Jun 05, 2014 10:28 am

workingatit wrote: aside from getting into to 1-3 yr treasuries, I know of shv being used
is this considered the best in this category?

and for treasury bills, what is the recommendation for duration?

thanks
There is no hard and fast rule on duration, though I think there is a strong consensus against going out farther than 3 years on the yield curve. It mostly comes down to risk tolerances. The shorter the duration, the safer you are but the lower your return. If you want to go with T Bills in an ETF, a perfectly reasonable option, I would suggest either SHV, or BIL which is even shorter in duration. Both are good choices and IMHO very safe. Of course direct ownership is always the safest route, but seriously, if T BILL ETFs are not paying then chances are the only thing you are going to want to own is gold.
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Re: best etf for cash?

Post by Pet Hog » Fri Jun 06, 2014 5:16 am

SHV: yield, 0.00%; expense ratio, 0.12%
BIL: yield, 0.00%; expense ratio, 0.14%
SHY: yield 0.32%; expense ratio, 0.15%
(numbers from marketwatch.com)

Is it really worth the effort to buy any of these ETFs right now?  To make 0.17%, at best, annually?  That's a whopping $17 a year on a $10,000 investment.  Sure, there is safety in buying the bonds directly, but the ETFs seem a waste of time right now, especially if you have to pay a brokerage fee.

I prefer I-bonds, CDs from too-big-to-fail institutions, high-interest savings/checking accounts, and money market accounts for the rest.  I don't think short-term interest rates will rise any time in the next decade.
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Ad Orientem
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Re: best etf for cash?

Post by Ad Orientem » Fri Jun 06, 2014 6:38 am

Cash is not there for its return. It's there for safety. Under normal circumstances you will get a slight negative real return since cash generally lags inflation.
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KevinW
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Re: best etf for cash?

Post by KevinW » Fri Jun 06, 2014 9:26 am

To answer the original question, IMO, the best vehicle for cash is a T-bill money market, but very few of those are open to new investors right now. Among ETFs, BIL is probably closest to a MMF. SHV is probably second-closest.

Another concern with SHV in the context of an all-ETF portfolio is that you probably have to use TLT for bonds, so you already have one asset at iShares. If you use SHV for cash then approximately half your portfolio is held with only one fund sponsor, which is not well diversified. With BIL it is possible to use a different vendor for each asset, for example VTI, TLT, SGOL, BIL.
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Re: best etf for cash?

Post by mathjak107 » Sat Jun 27, 2015 5:20 am

i hold the distinguished  honor of actually going through the failure of a money market.  we lost a percent or 2 but the bigger issue was once it broke the buck money was locked up  for a few months.

the money market was called the reserve and it was linked to my david lerner account.  luckily i had very little in it but it was a rude awakening to what does happen with money markets first hand .
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Desert
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Re: best etf for cash?

Post by Desert » Sat Jun 27, 2015 9:00 am

Pet Hog wrote: SHV: yield, 0.00%; expense ratio, 0.12%
BIL: yield, 0.00%; expense ratio, 0.14%
SHY: yield 0.32%; expense ratio, 0.15%
(numbers from marketwatch.com)

Is it really worth the effort to buy any of these ETFs right now?  To make 0.17%, at best, annually?  That's a whopping $17 a year on a $10,000 investment.  Sure, there is safety in buying the bonds directly, but the ETFs seem a waste of time right now, especially if you have to pay a brokerage fee.

I prefer I-bonds, CDs from too-big-to-fail institutions, high-interest savings/checking accounts, and money market accounts for the rest.  I don't think short-term interest rates will rise any time in the next decade.
I am a PP cash heretic, so please don't read this.  :) 

I have all my cash in PenFed CD's earning 3.04%.  CD's are a government-supported free lunch for small investors.  The FDIC limit per institution, per SSN is $250K, so it's not difficult for even a very wealthy investor to place their entire 25% cash allocation in CD's, fully FDIC insured. 

Getting a bit of return on cash is helpful, of course.  If one gets 3% rather than 0% on cash, that translates into 0.75% of additional real return, annually.  In this era of low expected returns, that's huge. 
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Re: best etf for cash?

Post by barrett » Sat Jun 27, 2015 10:10 am

Here's a link for Desert's PP cash heresy:

http://www.interest.com/cd-rates/advice ... pays-3-04/

Desert, do you have those CDs laddered so that you always have some liquid cash? And if you had to buy beaten down stocks (The Desert Portfolio holds 30% in equities, right?), would you have enough cash on hand to do so? Thanks.
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Re: best etf for cash?

Post by chesser » Sat Jun 27, 2015 12:22 pm

from what I can see the current max rate is 1.5% for penfed cd's and you'd have to go out to 5 or 7 yrs for that

https://www.penfed.org/Certificates_Overview/#tabs-2
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Re: best etf for cash?

Post by Xan » Sat Jun 27, 2015 1:39 pm

What scares me about any duration at all is lack of responsiveness.  If interest rates suddenly spike, and you have a 5 year CD, you have to wait 5 years before your cash starts responding.  (That can be mitigated with ladders, of course, but not solved.)  Also, CDs are certainly "deep cash", as anything you put there can't be used for emergency uses, for rebalancing, or for drawing down (if you're in that phase).

GE Capital still pays a 1%+ interest rate on their savings account:
https://www.gecapitalbank.com/savings-p ... vings.html
That seems like as good a place as any.  Especially since you can switch to something better if it comes along without having to wait for a CD to expire.
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buddtholomew
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Re: best etf for cash?

Post by buddtholomew » Sat Jun 27, 2015 3:45 pm

Xan wrote: What scares me about any duration at all is lack of responsiveness.  If interest rates suddenly spike, and you have a 5 year CD, you have to wait 5 years before your cash starts responding.  (That can be mitigated with ladders, of course, but not solved.)  Also, CDs are certainly "deep cash", as anything you put there can't be used for emergency uses, for rebalancing, or for drawing down (if you're in that phase).

GE Capital still pays a 1%+ interest rate on their savings account:
https://www.gecapitalbank.com/savings-p ... vings.html
That seems like as good a place as any.  Especially since you can switch to something better if it comes along without having to wait for a CD to expire.
Ally bank offers a raise your rate CD option that enables you to earn the highest rate available should interest rates rise. I have a 2 and 4 year CD with this option to ensure that I earn the highest rate available. The balance of my cash is in Savings at .99%
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Desert
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Re: best etf for cash?

Post by Desert » Sat Jun 27, 2015 4:52 pm

barrett wrote: Here's a link for Desert's PP cash heresy:

http://www.interest.com/cd-rates/advice ... pays-3-04/

Desert, do you have those CDs laddered so that you always have some liquid cash? And if you had to buy beaten down stocks (The Desert Portfolio holds 30% in equities, right?), would you have enough cash on hand to do so? Thanks.
I actually don't have the CD's laddered, though I'd prefer to.  When (not if!) equities tank and I need to buy more, I will first be routing all new contributions into equities, and then selling treasuries to rebalance if necessary.  If I had to, I could sell a CD early, but I still have plenty of treasuries to sell at this point. 
Our greatest fear should not be of failure, but of succeeding at something that doesn't really matter. 
- D.L. Moody

Diversification means always having to say you're sorry.
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