How do you invest the Cash portion?

Discussion of the Cash portion of the Permanent Portfolio

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vnatale
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Re: How do you invest the Cash portion?

Post by vnatale » Fri Apr 17, 2020 7:39 pm

CT-Scott wrote:
Fri Apr 17, 2020 7:13 pm
No replies to my question? Bumping the thread.
Although written nearly 10 years ago this from the immortal MediumTex may be helpful to you:

viewtopic.php?f=4&t=205#p1545

Vinny
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CT-Scott
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Re: How do you invest the Cash portion?

Post by CT-Scott » Sat Apr 18, 2020 10:58 am

vnatale wrote:
Fri Apr 17, 2020 7:17 pm
Wouldn'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.
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:

viewtopic.php?f=1&t=10666
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ochotona
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Re: How do you invest the Cash portion?

Post by ochotona » Sun Apr 19, 2020 7:15 am

If the plan's money market is unsafe maybe only invest as much so as to get the employer match, then invest in external IRAs and Brokerage accounts. Do you have HSA access? You can transfer those assets out as often as you wish while in-service, Fidelity is the best choice. Never use it consider HSA as part of retirement.

Sometimes if you're over age 59.5 you can do an in-service 401k roll to an IRA and liberate those funds. Once a year I believe.

Do you use I- Bonds?
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Re: How do you invest the Cash portion?

Post by jhogue » Sun Apr 19, 2020 8:26 am

1. I would NOT cash out 401k's just because my investment options don't immediately allow you to conform the Permanent Portfolio's architecture. The tax hit will be significant, starting with a 10% penalty and ending with higher tax bracket rates at the state and federal level. Think of your transition as a multi-year strategy rather than a one time event.

2. I had a stable value fund for a few years in a 457b account. I picked it because it was the lesser of all of the other available evils. The yield was OK, but I rolled it over to my IRA as soon as I reached 59.5 years, as ocho suggested above.

3. My 401k provider (Fidelity) had a brokerage window option, which allowed me to pick a much broader range of investments, and that brought me closer to a true HBPP much sooner than otherwise. I would ask the firm's HR reps to help set this up if they don't already have this option. Fidelity reps can and will help with implementing this option as well.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: How do you invest the Cash portion?

Post by vnatale » Thu Apr 23, 2020 11:34 pm

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.


Another of my favorite responses....

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Re: How do you invest the Cash portion?

Post by vnatale » Thu Apr 23, 2020 11:44 pm

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%.
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?

Vinny
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Re: How do you invest the Cash portion?

Post by vnatale » Fri Apr 24, 2020 12:09 am

dualstow wrote:
Sun Oct 27, 2019 1:06 pm
VUSXX/#11 is the greatest.
As epitomized by it periodically becoming made unavailable to us if you don't already have it!

Vinny
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Re: How do you invest the Cash portion?

Post by vnatale » Fri Apr 24, 2020 12:12 am

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!
Provocative!

Vinny
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Re: How do you invest the Cash portion?

Post by vnatale » Fri Apr 24, 2020 12:14 am

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.
The counter to the belief that having FDIC backed investment is as good as investing in some form of Treasury Bills.

Vinny
"I only regret that I have but one lap to give to my cats."
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Re: How do you invest the Cash portion?

Post by ochotona » Fri Apr 24, 2020 9:30 am

Federal Reserve scraps transfer limits on bank savings accounts
BY PETE SCHROEDER, REUTERS - 13 MINUTES AGO

WASHINGTON (Reuters) - The U.S. Federal Reserve announced Friday that banks can now allow account holders to make an unlimited number of withdrawals and transfers from their savings accounts.

The central bank updated its rules to scrap the six-per-month limit that had previously existed for such accounts. The Fed said the move would help ensure people can access their funds "at a time when financial events associated with the coronavirus pandemic have made such access more urgent."

The Fed said it removed the limit because a recent policy shift had rendered it unnecessary.

In March, the Fed scrapped its reserve requirements for bank accounts as part of a broader effort to keep funds flowing to businesses and households amid the pandemic. Previously, banks were required to hold a certain amount of reserves against funds in "transaction accounts," like checking accounts, that saw money frequently coming and going. Banks did not have to hold similar reserves against savings accounts, but were limited in how often money could be moved from them.

The Fed said that after it eliminated reserve requirements for all types of accounts, it was no longer necessary to treat savings accounts differently.

(Reporting by Pete Schroeder; Editing by Chizu Nomiyama and Jonathan Oatis)
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Re: How do you invest the Cash portion?

Post by vnatale » Fri Apr 24, 2020 10:54 am

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.
A good response. Representing a not often stated point of view.

Vinny
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Re: How do you invest the Cash portion?

Post by vnatale » Fri Apr 24, 2020 11:00 am

ochotona wrote:
Tue Dec 03, 2019 7:03 pm
I-Bonds cannot break the zero bound. This is big f deal. Retail depositors in Europe are now being charged to keep their money in the bank.
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.

Vinny
"I only regret that I have but one lap to give to my cats."
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