Although written nearly 10 years ago this from the immortal MediumTex may be helpful to you:
viewtopic.php?f=4&t=205#p1545
Vinny
Moderator: Global Moderator
Although written nearly 10 years ago this from the immortal MediumTex may be helpful to you:
Well, the problem is that the bulk of our funds are locked inside of our employer-chosen 401k accounts, which have limited options. My wife's options look especially awful. I just created a new post with more details:vnatale wrote: ↑Fri Apr 17, 2020 7:17 pmWouldn't the safety of any stable value fund depend upon how safe the insurance company is backing it? I'm forgetting exactly how the insurance company produce these funds.
In any event they will never be as safe as a short-term Treasury Bill fund. But the latter will pay less.
Therefore, it comes down to which you prize more -- return or safety.
jacksonM wrote: ↑Sun Jul 07, 2019 6:57 pm T bills for me too. Some of it is in various money market accounts at Fidelity and Vanguard for convenience sake but basically if I have a big bunch of cash it goes into T-Bills.
As for why I do this, it's because that was what HB suggested in his book and also the authors of the newer book by the folks who originally started this forum. They seemed to have spent more time thinking about these kinds of things than me and showed facts and figures for why it worked in the overall scheme of things so I didn't see any reason to delve any further to come up with my own plans.
Especially true nowadays when the best you can hope for with cash beyond what they recommended is is a minuscule improvement that doesn't really justify the risk of doing something else.
How is this working? FDLXX is ALWAYS 100% Treasury Bills while VUSXX need only be 80%. The expense ratios are still the same. Yet how does FDLXX today have a yield of 1.55% while VUSXX's is only 0.59%? Wouldn't one expect the opposite?sophie wrote: ↑Sun Oct 27, 2019 11:07 amI don't use ETFs for cash, but it's mainly because they are a PITA to trade. Plus I've experienced a bit of float with share values. Much prefer money market funds pegged at $1/share and straight up T bills.
Also, VUSXX (Vanguard treasury-only MM) blows SHV away on the expense ratio (0.09% vs 0.15%). I wish FDLXX (Fidelity's treasury MM) would come down from its eye-popping 0.42%.
As epitomized by it periodically becoming made unavailable to us if you don't already have it!
Provocative!drumminj wrote: ↑Wed Nov 27, 2019 1:07 pmI buy both, to be honest. For "deep cash", as folks tend to call it, I have some 5-yr CDs fetching > 3%. Yes, I'm chasing yield, but I can withdraw the money immediately (for a small penalty). It's a bit less accessible than cash in an FDIC-insured account, but for some of my cash, the difference in yield is worth it.
I also have a bunch of 13-week treasuries, cash in a bank account, and cash on hand. There's some risk with FDIC, but there's also risk with SIPC (possibly more?) if you're holding STTs with Fidelity, and there's risk with TreasuryDirect (as discussed on this forum).
Pick your poison!
The counter to the belief that having FDIC backed investment is as good as investing in some form of Treasury Bills.jhogue wrote: ↑Wed Nov 27, 2019 2:48 pm 11/27/19
drumminj,
I am not picking your poison because I agree with Harry Browne and craigr that all financial risks are not created equal:
From CraigR’s FAQ:
"Q: Why a Treasury Money Market Fund and not something else with better yield?
A: Because you are not looking to take risk with your cash. Treasury Money Market Funds that are properly run are one of the most liquid investments you can own. There are no FDIC limits to worry about, no bank credit worthiness to worry about, and you will always be paid barring some extremely catastrophic event in the country. Chasing yield with your cash means you are taking on more risk and those risks can show up when you least expect (or want) them to."
The FDIC ran short of cash during the 2008-2009 financial crisis and had to be bailed out by Congress to the tune of $100 billion. That is a fact, not an opinion or a theory.
During that same time period, there was no interruption in the secondary market in T-bills.
Happy Thanksgiving to one and all.
A good response. Representing a not often stated point of view.drumminj wrote: ↑Wed Nov 27, 2019 9:08 pmThat's fair, and to be clear I'm not trying to convince anyone.
I disagree though that there are no "FDIC limits to worry about". Your MM funds are held by a financial institution (in "street name", possibly even?) which may become insolvent, halt withdrawls, etc. You have insurance issues there, no? Asking sincerely, is this less risky than FDIC?
Treasuries held directly? Sure. Treasuries held on your behalf? Less so. Treasury MM? Also has risks.
Again, not trying to convince anyone to do what I do -- just trying to be clear about the risks here in the margins.
Another I-Bond proponent. They truly would be THE cash investment if only they did not have the unfortunate yearly limit on their purchases. For someone with a portfolio of any size and choosing to transform that present portfolio to classic Permanent Portfolio the limit on purchases leaves I-Bonds as being only a small to tiny portion of the cash investment, leaving one to decide where to invest the rest of the cash portion. In my case I'd go strictly Treasury Bills of one year or less maturities.
Is the only way to Treasuries directly Treasury Direct?drumminj wrote: ↑Wed Nov 27, 2019 9:08 pmThat's fair, and to be clear I'm not trying to convince anyone.
I disagree though that there are no "FDIC limits to worry about". Your MM funds are held by a financial institution (in "street name", possibly even?) which may become insolvent, halt withdrawls, etc. You have insurance issues there, no? Asking sincerely, is this less risky than FDIC?
Treasuries held directly? Sure. Treasuries held on your behalf? Less so. Treasury MM? Also has risks.
Again, not trying to convince anyone to do what I do -- just trying to be clear about the risks here in the margins.
Good points!jhogue wrote: ↑Fri Dec 06, 2019 3:27 pm Vinny,
Financial safety is reinforced through diversity and liquidity. T-bills held in a brokerage account at Vanguard are safe enough for “normal” times because Vanguard is a big active player in the enormous world-wide secondary market for Treasurys. Unless there is a terrific disruption in this market your money will always be completely liquid. Nevertheless, you might eventually consider diversifying your holdings of Treasury –issued securities as follows:
1. Federal Reserve notes (ie., greenbacks yielding 0% interest) kept in a safe place in your home.
2. A TreasuryDirect account in your name.
3. Paper I-bonds with registered serial numbers purchased with your annual tax refund.
Any of these will diversify your holdings away from a 100% T-bill position in a brokerage account. But understand that each of these methods poses different risks from T-bills held in a brokerage account. That is the way risk works.
And, more representing a certain point of view.drumminj wrote: ↑Fri Dec 06, 2019 9:56 pmI don't mean to keep harping on the same thing, but it seems you're overlooking the aspect of relying on a third party here. Sure, the treasury market is liquid, but that doesn't mean that vanguard will be solvent. Presumably these treasuries are held in "street name", like all other instruments at a brokerage, and thus aren't in your direct possession and are at risk if there's an issue with the institution itself, which is where SIPC comes in. Is this not the case treasuries (vs stocks)?jhogue wrote: ↑Fri Dec 06, 2019 3:27 pm T-bills held in a brokerage account at Vanguard are safe enough for “normal” times because Vanguard is a big active player in the enormous world-wide secondary market for Treasurys. Unless there is a terrific disruption in this market your money will always be completely liquid.
"In normal times", sure, but if you're talking about FDIC and liquidity with a bank/MM account/CD, it seems you should be considering similar scenarios with your brokerage -- Vanguard or Fidelity or Schwab or wherever else. (I'll admit that bank receiverships are far more frequent than brokerage houses).
I agree with you on the tiers of possession and liquidity, and my intent here is just to suggest that bank accounts and CDs fall upon this same continuum, and in normal times where banks remain solvent, don't have drastically different characteristics from treasuries, aside from often paying a better rate. If I need liquidity in "normal" times, I can liquidate a treasury through my broker just as easily as I can break a CD (which I've done a few times, and takes no more than a day or two).
In "abnormal" times like the 2008 "crisis", I agree treasuries are the safer play.
And, important clarifications by mathjak.mathjak107 wrote: ↑Sat Dec 07, 2019 3:12 am FEW REALIZE THIS :
if you ever check your vanguard statement or fidelity they read :
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" SIPC insurance provides protection for assets held by you in a Vanguard Brokerage account. Vanguard Brokerage Services is a division of Vanguard Marketing Corporation, which is a member of SIPC...
Vanguard mutual funds, including any Vanguard money market fund linked to your Vanguard Brokerage account, are not covered by SIPC insurance."
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"If you buy mutual funds through a brokerage account, those funds are protected against theft by SIPC.
However, if you buy mutual funds directly from a mutual fund company, they are not protected by SIPC, "because no protection is necessary : . Each mutual fund is set up as a separate entity, apart from the company that manages the fund. "The employees at a mutual fund don't have direct access to the assets,All mutual fund assets by law must be held in a trust account at a custodian bank.
That is a special account, not part of the bank's assets. The bank can fail, but the trust accounts are not involved in any way shape or form in that failure ...
https://www.bogleheads.org/wiki/SIPC_pr ... tual_funds
A BIG vote for Treasury Direct.Kbg wrote: ↑Tue Dec 10, 2019 4:34 pm Don’t forget, the govt can print money. So getting your money back is not really the issue. Far more likely problems are legal delays and in the ZA (new acronym for Zombie Apocalypse) inflationary devaluation.
To me for the first and most likely problem, treasury direct is a no brainer. Just you and your government, no middlemen of any kind.
If one is using the Vanguard Total Stock Market fund as one's 25% equity investment and it has a yield of 2.15% then it would seem to qualify? The remaining question would be what you or he would consider to be "over the long term". What do you consider to be the time range to constitute being "over the long term"?mathjak107 wrote: ↑Wed Dec 11, 2019 2:26 am old school thinking used to say that bonds should go in retirement accounts . the fact is taking up valuable space in tax advantaged accounts at these low yields is a waste . michael kitces found that as little as a 2% dividend over the long term wipes out any tax advantage in a taxable account. fund turnover makes it worse .
as kitces points out
"Executive Summary
In an environment where generating portfolio alpha is difficult, strategies like managing assets on a household basis to take advantage of asset location opportunities to generate “tax alpha” are becoming more and more popular. The caveat, however, is that making effective asset location decisions is not easy, either.
For instance, while the traditional asset location strategy “rule of thumb” is that tax-inefficient bonds go into an IRA, while equities eligible for preferential tax rates go into a brokerage account, the reality is that for investors with long time horizons the optimal solution may be the opposite. Once stock dividends and portfolio turnover are considered, the ongoing “tax drag” of the portfolio can be so damaging to long-term returns that placing equities into an IRA may be more efficient, even though they are ultimately taxed at higher rates!
In fact, it turns out that almost any level of portfolio turnover will eventually tilt equities towards being held in IRAs given a long enough time horizon (and especially while today’s low interest rates result in almost no benefit for bonds to gain tax-deferred growth inside of retirement accounts). Which means in the end, good asset location decisions depend not only on returns and tax efficiency, but an investor’s time horizon as well!
https://www.kitces.com/blog/asset-locat ... e-horizon/
Subprime auto loans probably.Kriegsspiel wrote: ↑Mon May 11, 2020 8:45 pm What are they doing that they can give you 1.25% interest
I don't see any way that it won't get at least that bad.sophie wrote: ↑Tue May 12, 2020 7:51 am WSJ had a piece a few days ago about how the mortgage market is about to run into serious problems. Watch out for municipal bonds, mortgage backed securities, repurchase agreements, junk bonds etc. Which is what Ally is probably using to give you that interest rate.
T bills and Treasury money markets for me, at least until all this settles out. We could see another 2008 frozen-credit event - not saying it will happen just that it might.
I've been reading similar stuff.sophie wrote: ↑Tue May 12, 2020 7:51 am WSJ had a piece a few days ago about how the mortgage market is about to run into serious problems. Watch out for municipal bonds, mortgage backed securities, repurchase agreements, junk bonds etc. Which is what Ally is probably using to give you that interest rate.
T bills and Treasury money markets for me, at least until all this settles out. We could see another 2008 frozen-credit event - not saying it will happen just that it might.