How do you invest the Cash portion?

Discussion of the Cash portion of the Permanent Portfolio

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dualstow
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Re: How do you invest the Cash portion?

Post by dualstow » Wed Nov 27, 2019 8:07 am

Looks like Ally checking's interest rate has dipped from 0.6% to 0.5%.

Vanguard treasury mm/VUSXX/Fund 0011 is down to 1.69% compounded.
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drumminj
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Re: How do you invest the Cash portion?

Post by drumminj » Wed Nov 27, 2019 8:45 am

dualstow wrote:
Tue Nov 26, 2019 9:10 am
Even notes longer than 3-years don't belong in the pp cash section. They've got the quality, but they are just not cash.
What about a 5-year CD with a small early breakage penalty? Good as cash, no? (well, good as cash in any other bank account/instrument)
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Re: How do you invest the Cash portion?

Post by dualstow » Wed Nov 27, 2019 8:46 am

I don't have a problem with it, even though I don't buy them. I guess I would have to try it to really know.
I would ask jhogue, though.
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Re: How do you invest the Cash portion?

Post by jhogue » Wed Nov 27, 2019 10:10 am

drumminj,

I do not buy 5 year CDs. I buy Treasury-backed securities because safety and liquidity is more important for my HBPP Cash quadrant than yield.

More important than what I think, however, is what you think:

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?
“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 sophie » Wed Nov 27, 2019 10:50 am

dualstow wrote:
Tue Nov 26, 2019 4:23 pm
One of each, please. O0
Seriously, it depends on which way you think rates are going. I do in fact buy both.
Good for you dualstow! Stick to your guns!

I never got the 3 year rolling ladder thing going. The I bonds I have are soaking up my "deep cash" permissible level, so I'm sticking to short maturities or treasury money market funds for the rest. If I had the deep cash space, I'd be super tempted to use CDs. You can wait to break them until a higher interest rate outweighs the 3 month interest penalty, and the face value isn't at risk. With a short term treasury though, you pretty much are stuck with holding to maturity because their value and bid-ask spread will erase any such interest rate arbitration.
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Re: How do you invest the Cash portion?

Post by drumminj » 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!
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Re: How do you invest the Cash portion?

Post by jhogue » 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.
“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 drumminj » 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.
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Re: How do you invest the Cash portion?

Post by Pet Hog » Fri Nov 29, 2019 1:57 am

A general question, not addressed to anyone in particular: Isn't a treasury money market fund just a treasury ladder held by someone else on your behalf? If so, there's not magic to it. You can set up your own and cut out the middleman. And set the duration/maturity however you like. Personally, 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.
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Re: How do you invest the Cash portion?

Post by dualstow » 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.
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Re: How do you invest the Cash portion?

Post by pugchief » Fri Nov 29, 2019 10:51 am

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.
Yep. And that, in a nutshell, is why I think savings bonds (any series) are also a bad choice.
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Re: How do you invest the Cash portion?

Post by sophie » Fri Nov 29, 2019 11:38 am

pugchief wrote:
Fri Nov 29, 2019 10:51 am
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.
Yep. And that, in a nutshell, is why I think savings bonds (any series) are also a bad choice.
Really? They're easy to liquidate and won't lose value. Even with the one year lockup and 3 month interest penalty if you sell before 5 years, I'd prefer them to > 1 year STTs for emergency cash withdrawals, which is why I've never found a place for treasury ladders.
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