Zeros for cash?

Discussion of the Cash portion of the Permanent Portfolio

Moderator: Global Moderator

thisisallen
Senior Member
Senior Member
Posts: 106
Joined: Sat Sep 24, 2016 5:39 pm
Location: NJ and India

Zeros for cash?

Post by thisisallen » Tue Mar 27, 2018 9:15 pm

Is it OK (PP-wise) to buy 1 yr zero coupon Treasurys and hold them in the Cash portion of the PP?
User avatar
sophie
Executive Member
Executive Member
Posts: 2968
Joined: Mon Apr 23, 2012 7:15 pm

Re: Zeros for cash?

Post by sophie » Tue Mar 27, 2018 9:27 pm

1 year zero coupon Treasury - otherwise known as Treasury bills.

Yes, that's a a canonical product for the cash portion, plus it just happens to be beating just about any cash investment out there with a similar time to maturity.
User avatar
ochotona
Executive Member
Executive Member
Posts: 2426
Joined: Fri Jan 30, 2015 5:54 am

Re: Zeros for cash?

Post by ochotona » Wed Mar 28, 2018 5:02 am

sophie wrote:1 year zero coupon Treasury - otherwise known as Treasury bills.

Yes, that's a a canonical product for the cash portion, plus it just happens to be beating just about any cash investment out there with a similar time to maturity.
Sophie, do you pay short term capital gains tax on 1 year zeroes?
User avatar
dualstow
Executive Member
Executive Member
Posts: 7952
Joined: Wed Oct 27, 2010 10:18 am
Location: next to emotional support peacock
Contact:

Re: Zeros for cash?

Post by dualstow » Wed Mar 28, 2018 8:50 am

ochotona wrote:Sophie, do you pay short term capital gains tax on 1 year zeroes?

Tax trickery with short term treasuries
(by Sophie)
viewtopic.php?t=2653

Ransomware Keeps Baltimore Locked Up 🔒
User avatar
Kriegsspiel
Executive Member
Executive Member
Posts: 1504
Joined: Sun Sep 16, 2012 5:28 pm

Re: Zeros for cash?

Post by Kriegsspiel » Wed Mar 28, 2018 9:50 am

I'd been buying 1 year bills for years, but I've been switching to VGSH (Vanguard's 1-3 year Treasury ETF) as they mature. I found the yields on bills with an acceptable minimum buy amount is too low to be worth the hassle anymore.
User avatar
sophie
Executive Member
Executive Member
Posts: 2968
Joined: Mon Apr 23, 2012 7:15 pm

Re: Zeros for cash?

Post by sophie » Wed Mar 28, 2018 10:11 am

ochotona wrote:
sophie wrote:1 year zero coupon Treasury - otherwise known as Treasury bills.

Yes, that's a a canonical product for the cash portion, plus it just happens to be beating just about any cash investment out there with a similar time to maturity.
Sophie, do you pay short term capital gains tax on 1 year zeroes?
Good question! Short term cap gains and interest income are the same tax rates, no? The interesting question is whether you'd get long term gains on a 1 year bill. I would think not, but has anyone has bought 1 year treasuries in taxable? I've only done 3 months so far. If so, that would make a 1 year Treasury the slam-dunk winner, instead of just THE winner in the Best Cash Return for a 1 Year Duration contest.
User avatar
Kriegsspiel
Executive Member
Executive Member
Posts: 1504
Joined: Sun Sep 16, 2012 5:28 pm

Re: Zeros for cash?

Post by Kriegsspiel » Wed Mar 28, 2018 11:18 am

sophie wrote:
ochotona wrote:
sophie wrote:1 year zero coupon Treasury - otherwise known as Treasury bills.

Yes, that's a a canonical product for the cash portion, plus it just happens to be beating just about any cash investment out there with a similar time to maturity.
Sophie, do you pay short term capital gains tax on 1 year zeroes?
Good question! Short term cap gains and interest income are the same tax rates, no? The interesting question is whether you'd get long term gains on a 1 year bill. I would think not, but has anyone has bought 1 year treasuries in taxable? I've only done 3 months so far. If so, that would make a 1 year Treasury the slam-dunk winner, instead of just THE winner in the Best Cash Return for a 1 Year Duration contest.
One year bills earn interest. I use Vanguard, and they calculate it for you, since you're not buying them at the original issue discount.

If you buy a bill that pays interest (2 or 3 year), the interest that's already accumulated is also counted as interest, it's called the bond premium on Treasury obligations and it's in box 12 on the 1099.
User avatar
dualstow
Executive Member
Executive Member
Posts: 7952
Joined: Wed Oct 27, 2010 10:18 am
Location: next to emotional support peacock
Contact:

Re: Zeros for cash?

Post by dualstow » Wed Mar 28, 2018 2:24 pm

Kriegsspiel wrote:I'd been buying 1 year bills for years, but I've been switching to VGSH (Vanguard's 1-3 year Treasury ETF) as they mature. I found the yields on bills with an acceptable minimum buy amount is too low to be worth the hassle anymore.
I started doing the same thing (VSBSX, the equivalent of VGSH) when you mentioned that minimum in the past. I mean, I was able to buy real T-bills in small amounts, but I didn't realize I might be getting a worse rate without doing $100,000.

Ransomware Keeps Baltimore Locked Up 🔒
barrett
Executive Member
Executive Member
Posts: 1516
Joined: Sat Jan 04, 2014 2:54 pm

Re: Zeros for cash?

Post by barrett » Thu Mar 29, 2018 4:11 am

dualstow wrote:
Kriegsspiel wrote:I'd been buying 1 year bills for years, but I've been switching to VGSH (Vanguard's 1-3 year Treasury ETF) as they mature. I found the yields on bills with an acceptable minimum buy amount is too low to be worth the hassle anymore.
I started doing the same thing (VSBSX, the equivalent of VGSH) when you mentioned that minimum in the past. I mean, I was able to buy real T-bills in small amounts, but I didn't realize I might be getting a worse rate without doing $100,000.
It looks like VSBSX has an expense ratio of .07%. I THINK that more or less offsets any hit you take by buying smaller lots of T-Bills. For example, when I bought some bills at Fidelity recently, the "list price" in their one-year bill area was 2.13%, but when I hit "depth of book" I ended up getting about 2.06% for my smaller lot (didn't have the $50,000 or $100,000 I needed to avoid that). One can see that actual yield right before hitting the execute trade button.

To answer Sophie's question, yes, I have started buying one-year bills but won't see what the tax treatment is on them until early 2020 as the first one will mature in early 2019. And by 2020 I will have forgotten to pay attention!

With all that bloviating out of the way, I do like the idea of having just one cash position in any account, as it's much easier to keep track of than a T-Bill ladder.
Mr Vacuum
Executive Member
Executive Member
Posts: 165
Joined: Tue Jan 19, 2016 11:51 am

Re: Zeros for cash?

Post by Mr Vacuum » Thu Mar 29, 2018 7:21 am

The irony of a clear answer about precise tax treatment of 1 year tbills not yet appearing in this thread amongst analyzers and tweakers is a bit much considering they were Harry Browne’s clear and simple recommendation for one fourth or the portfolio ;)

Indeed, I previously switched from funds to bills in taxable thinking it would mean less capital gains to think about and report since i was not selling but holding to maturity (but apparently didn’t check for sure??). I’ve got some maturing in July, so I’ll see how Fidelity classifies the gains then.
User avatar
pugchief
Executive Member
Executive Member
Posts: 2643
Joined: Tue Jun 26, 2012 2:41 pm
Location: suburbs of Chicago, IL

Re: Zeros for cash?

Post by pugchief » Thu Mar 29, 2018 7:48 am

barrett wrote: I do like the idea of having just one cash position in any account, as it's much easier to keep track of than a T-Bill ladder.
How exactly does one track the price of individual treasuries on google sheets? Will google finance pull the value from cuspis?

I am thinking about switching, as IL does not allow for the US Treasury state income tax exemption if they are held thru mutual funds or ETFs. >:(
User avatar
sophie
Executive Member
Executive Member
Posts: 2968
Joined: Mon Apr 23, 2012 7:15 pm

Re: Zeros for cash?

Post by sophie » Thu Mar 29, 2018 8:35 am

Interesting, I wasn't aware of the reduced yield for small lots of T bills bought at auction. I wanted to stay away from > 1 year durations as long as the Fed is still in rate-raising mode.

Pugchief - don't funds report interest as government vs non, for tax treatment purposes? How does Illinois know whether interest comes from a maturing T bill vs a fund?
Post Reply