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Re: How do you invest the Cash portion?

Posted: Wed Dec 04, 2019 8:33 pm
by vnatale
sophie wrote:
Sun Oct 27, 2019 11:07 am
ochotona wrote:
Fri Oct 25, 2019 7:19 pm
Does anyone use SHV for cash?
I 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%.
Does FDLXX usually have a yield about 0.33% less than VUSXX's rate?

Vinny

Re: How do you invest the Cash portion?

Posted: Wed Dec 04, 2019 8:40 pm
by vnatale
ochotona wrote:
Tue Nov 05, 2019 12:40 pm
vnatale wrote:
Tue Nov 05, 2019 12:26 pm

Does that whole process now seem like the Dark Ages compared to now? I also used to buy tons of stamps back and write a lot of checks. Now it's only a handful of stamps used ALL year and not that many checks written.

Vinny
Yeah... except just remember... common everyday email is NOT ENCRYPTED. If you want something to be really pretty private, send it by US Mail... or encrypt it.
That U.S. Mail is not ALWAYS "pretty private". Over the years I've been given enough of my neighbors' mail (which, of course, I return) that each time it happens I wonder if some neighbor originally received one of many Vanguard statements that arrive each month.

Vinny

Re: How do you invest the Cash portion?

Posted: Wed Dec 04, 2019 8:46 pm
by vnatale
jhogue wrote:
Mon Nov 25, 2019 2:36 pm

dualstow,

Looking in the rear view mirror, your ten year ladder of CDs must seem like a sure-fire-no-brainer-strategy for any amount of cash up to the $250,000 FDIC limit. Low inflation and Trump’s tax cut didn’t hurt either.

Here’s the problem as I see it:

Domestic STTs and ITTs are now stuck in a lower-bound range of 1.5 - 1.8%, and trillions in negative yielding euro and Swiss franc bonds are piling ever higher in Europe. There is no way that you can build a new ladder of of ten year CDs going forward that will bring you the after-inflation and after-tax yield your old CD ladder did. Interest rates can stay the same or they can rise, but they cannot continue to fall at the rate they did over the last decade for the next decade.
You bringing up FDIC limit brings up something I'd like clarification. SPIC limit.

I find the following: "SIPC coverage, however, has a limit. It’s capped at $500,000 per customer, with an exception of cash holdings, for which the limit is $250,000."

I'm assuming that the $500,000 limit would apply to all one would hold at, say, Vanguard? And, a money market fund would NOT be considered a cash holding? How does buying Treasury Bills via Vanguard brokerage get covered? Just part of that $500,000?

Vinny

Re: How do you invest the Cash portion?

Posted: Wed Dec 04, 2019 8:52 pm
by vnatale
drumminj wrote:
Wed Nov 27, 2019 1:07 pm
jhogue wrote:
Wed Nov 27, 2019 10:10 am
Why do you want to buy a 5 year FDIC-backed CD, which is illiquid (as you yourself described it) and not as safe as a T-bill?
I 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!
I JUST asked a question seeking clarification regarding SPIC. I assume you see the same risk holding them with Vanguard (or, anyone else)? Outside of TreasuryDirect, how else can you buy / hold them? I assume you can mitigate the SPIC risk by holding them in more than one brokerage (as advised by Craig and Tex's book). Please elaborate on any other SPIC risks you see.

Thanks

Vinny

Re: How do you invest the Cash portion?

Posted: Wed Dec 04, 2019 8:55 pm
by vnatale
drumminj wrote:
Wed Nov 27, 2019 9:08 pm
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:
That'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.
Sorry to keep hounding about this but I've never yet directly owned any bond outside of a fund and never really thought about SPIC until just recently.

Does buying Treasury bills via Vanguard brokerage constitute "Treasuries held directly"?

Vinny

Re: How do you invest the Cash portion?

Posted: Wed Dec 04, 2019 9:02 pm
by vnatale
dualstow wrote:
Fri Nov 29, 2019 3:29 am
Pet Hog wrote:
Fri Nov 29, 2019 1:57 am

I have no problem with cash being defined as up to five-year treasuries/CDs, but I am in the accumulation phase. I can understand someone in the withdrawal phase having a different opinion.
I’m accumulating, too. But, imagine you suddenly need to use cash at the same time that five-year treasuries sharply decrease in value. How mature is that ladder? How many of those treasuries can you really sell in a pinch without much of a loss?

It’s not the same as a treasury mm, from which you can withdraw what you need and a share = $1. If you’re really going to go five years out, maybe you had better go with those CDs with low penalties.
Totally understand what you are saying regarding the potential loss. Does anyone know the sharpest drop in Treasury Bills? Just went here: https://www.treasury.gov/resource-cente ... &year=2008 to look at what happened in 2008.

HUGE drop for 1 YR Treasury Bills

01/02/08 started at 3.17%. 12/31/08 ended at 0.37%. A drop of 2.7%! Of course, an EXTREME. But NO guarantees we don't experience the same (or WORSE!) again.

Vinny

Re: How do you invest the Cash portion?

Posted: Thu Dec 05, 2019 4:28 am
by dualstow
That’s a drop in yield, isn’t it? Meaning the value of those bills went up.
Even when the yield goes up and the t-bill price goes down, I’ll take the minimal loss vs that in other holdings.

Re: How do you invest the Cash portion?

Posted: Thu Dec 05, 2019 9:00 am
by jhogue
Vinny,

Remember that if you held your short term T-bill to maturity, you got your full principal back plus your original stated interest.

Note too in the 2008 example you cited that when US interest rates fell, the principal value of the 30 year T-bonds in the HBPP rose dramatically. You always have to consider how the whole portfolio as a whole reacts, not just one asset.

Re: How do you invest the Cash portion?

Posted: Fri Dec 06, 2019 3:48 am
by mathjak107
for 2019 one of the worst places to keep cash was the permanent portfolio's own treasury bond fund


'Permanent Portfolio Treasury (PRTBX): Expense ratio: 0.66%. Management fee: 1.19%. After expenses, the 5 year return is 0.33%, meaning your fees are far higher than the fund's returns."

https://finance.yahoo.com/news/mutual-f ... 01586.html

Re: How do you invest the Cash portion?

Posted: Fri Dec 06, 2019 6:22 am
by dualstow
jhogue wrote:
Thu Dec 05, 2019 9:00 am
Vinny,

Remember that if you held your short term T-bill to maturity, you got your full principal back plus your original stated interest.
...
Right, and the same goes for those 5-year notes. But, if you have to sell suddenly, one could do worse than t-bills, or VUSXX (treasury money market).

Re: How do you invest the Cash portion?

Posted: Fri Dec 06, 2019 9:52 am
by sophie
vnatale wrote:
Wed Dec 04, 2019 8:55 pm
drumminj wrote:
Wed Nov 27, 2019 9:08 pm
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:
That'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.
Sorry to keep hounding about this but I've never yet directly owned any bond outside of a fund and never really thought about SPIC until just recently.

Does buying Treasury bills via Vanguard brokerage constitute "Treasuries held directly"?

Vinny
This is actually a really good question.

A treasury bill or bond should be very safe, so there should be no problem selling it or collecting the promised bond amount + interest on maturity. However, in order to get that cash to your checking account so you can use it to pay bills, it has to go by way of the brokerage core fund. I have no idea how safe those are...presumably pretty safe, but if there were ever a panic in the money markets I assume those core funds could be affected. A frozen core fund would be a disaster, as it would effectively freeze your entire account.

Harry Browne advocated getting a Treasury MM with direct checkwriting privileges, and that's how his own finances were set up. He would write a check from the treasury MM once a month to fund his living expenses, because he distrusted banks to the extent that he wouldn't keep more than one month expenses in one. Unfortunately, neither Vanguard nor Fidelity provide checkwriting from an individual fund - only from an account. I don't know where you'd go to find such a beast.

Re: How do you invest the Cash portion?

Posted: Fri Dec 06, 2019 2:04 pm
by dualstow
sophie wrote:
Fri Dec 06, 2019 9:52 am
Unfortunately, neither Vanguard nor Fidelity provide checkwriting from an individual fund - only from an account. I don't know where you'd go to find such a beast.
Sophie, I have checkwriting from many of my Vanguard funds, even a long-term muni bond fund.
There was a hiccup during some reshuffling- consolidation of the indy stocks and the mutual funds, which they used to keep in separate sections -- but I merely had to reapply for checks and they came in the mail.

Re: How do you invest the Cash portion?

Posted: Fri Dec 06, 2019 3:27 pm
by jhogue
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.

Re: How do you invest the Cash portion?

Posted: Fri Dec 06, 2019 9:56 pm
by drumminj
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.
I 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)?

"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.

Re: How do you invest the Cash portion?

Posted: Sat Dec 07, 2019 3:12 am
by mathjak107
FEW REALIZE THIS :

if you ever check your vanguard statement or fidelity they read :
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
" 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."
-------------------------------------------------------------------------------------------------------------------------------------------------
"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

Re: How do you invest the Cash portion?

Posted: Sat Dec 07, 2019 6:44 pm
by vnatale
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.
If I did think there was not a possibility of there being NOT "normal" times I would never invest in Treasury Bills as there are higher paying options that also have risk during "normal" times. I want the Treasury Bills for protection in those times which are not "normal" and, therefore, expect them to be ultra safe.

The risk / downsides to the other three options you listed:

1. Subject to theft or fire. I do have a little safe but have never used it as isn't that advertising to someone where the "valuables" are?
2. Cannot do that for retirement investments.
3. Also cannot do for retirement investments plus the amounts are tiny for a single person.

Vinny

Re: How do you invest the Cash portion?

Posted: Sat Dec 07, 2019 9:03 pm
by Kbg
I bonds are basically the same tax wise as a tax deferred account, Regular IRA/401K etc. The only difference is taxes are due on maturity vs RMDs. If are say 50 then I Bonds would be tax free until 80 vs 70.5. As you noted, size is limited.

Re: How do you invest the Cash portion?

Posted: Sun Dec 08, 2019 1:24 pm
by mathjak107
You have to be careful with anything that has to be sold and then gets sweeper in to a money market ..shy ,bil, shv , etc all get sold then sweeper .

But like I had happen when my money market broke the buck it was locked and nothing could come out for a few months

Re: How do you invest the Cash portion?

Posted: Mon Dec 09, 2019 9:16 am
by ochotona
I have bunch of T-Bills maturing, so now my Emergency Fund is going to slosh back over to Ally, because they pay more than the T-Bill I'd be buying to replace the maturing one. This is a game that happens from time-to-time. My Fidelity "bank substitute is going to get emptied out.

Re: How do you invest the Cash portion?

Posted: Mon Dec 09, 2019 11:08 am
by jhogue
(Sigh)
1. Does anyone examine the creditworthiness of the banks that are peddling these supposedly “red hot” CD rates?
Ally Bank, its predecessor , and its subsidiaries were up to their eyeballs in subprime mortgages. It had to be bailed out with $17 billion in TARP funds or it would have failed.
Why would anybody want to give their hard-earned money to this outfit?
(Source: https://en.wikipedia.org/wiki/Ally_Financial)


2. I just checked with bankrate.com. Ally bank’s current 5 year CD rate is 2.15%-- which is LOWER than the current US Treasury-issued I bond at 2.20%!

Re: How do you invest the Cash portion?

Posted: Mon Dec 09, 2019 11:49 am
by dualstow
O0 Poor J Hogue. If Hank Hill ('King of the Hill') is a good man in a world gone bad, than J Hogue is definitely the Hank Hill of cash. (My highest compliment).

Re: How do you invest the Cash portion?

Posted: Mon Dec 09, 2019 12:47 pm
by ochotona
I'm not getting Ally CDs, using their Savings. Pays more than 30-day T-Bill. Yeah, I know about Ally... it use to be GMAC.

Re: How do you invest the Cash portion?

Posted: Mon Dec 09, 2019 1:07 pm
by mathjak107
It all gets paid by the same people in the end ...

Re: How do you invest the Cash portion?

Posted: Mon Dec 09, 2019 6:13 pm
by vnatale
MangoMan wrote:
Mon Dec 09, 2019 1:05 pm
And it is FDIC insured. Do you really think the Feds are going to renege on FDIC promises differently than Tbill promises?
In 2008-2009 it did end up backing up everything, including going past FDIC limits and money market funds.

But NEXT time CAN be different!

Vinny

Re: How do you invest the Cash portion?

Posted: Tue Dec 10, 2019 8:38 am
by jhogue
ochotona wrote:
Mon Dec 09, 2019 12:47 pm
I'm not getting Ally CDs, using their Savings. Pays more than 30-day T-Bill. Yeah, I know about Ally... it use to be GMAC.
Ally savings account interest rate is currently 1.70%.
3 month T-bill interest rate is currently 1.59%. Simple to ladder and put on auto-roll.
The difference is 0.11% ( further reduced by state and local taxes).

So why pick FDIC insurance coverage (which had to be bailed out by Congress in 2008) on a bank that effectively defaulted and had to be bailed out by TARP funds, instead of US Treasury bills, which were then and remain today the global reserve currency?

In the next banking crisis in the US (and there will be one) you want to hold Cash in the highest quality assets you can get. Every FDIC-insured account holder will be standing in line behind every US Treasury holder.