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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How do you invest the Cash portion?

Post by vnatale » Thu Jul 04, 2019 3:05 pm

I am ready to fully embrace The Permanent Portfolio as described in Craig Rowland and J.M. Lawson's The Permanent Portfolio book.

I am going for Level 4 and want to invest in the way that the book proscribes. I am not looking for any enhancements to what the book proscribes.

I was planning to use these four Vanguard / Fidelity funds for the Stock and Cash portions:

Vanguard Total Stock Market
Fidelity Total Stock Market
Vanguard Treasury Money Market
Fidelity® Treasury Only Money Market Fund

Again, I'm not looking for some other ways that enhance results of the Permanent Portfolio as proscribed by the book. However, the book came out in 2012, which means it is now 7+ years old and better products may be available to accomplish the book's mission.

I'm fairly confident that the two Stock funds have not been replaced by anything new.

But I know that, in the book, it was many times stated that the Vanguard Treasury Money Market Fund was not the ultimate since it was not 100% federal treasury.

Going to Vanguard I can see that the current composition of the Vanguard Treasury Money Market Fund (VUSXX) is:

U.S. Treasury Bills 100%

It seems that this fund has changed its investing policy since the book was written?

Similarly going to Fidelity I see that the composition of the Fidelity® Treasury Only Money Market Fund is:

Normally investing at least 99.5% of total assets in cash and U.S. Treasury securities.
In addition, the fund normally invests at least 80% of tis assets in U.S. Treasury securities.

Its current composition is:

U.S. Treasury Bills 72.23%, U.S. Treasury Coupons 28.64%, and Net Other Assets (0.87%).

Now going back through the book, it seems that the purest way to hold cash is to purchase T-Bills? It also cites these other suitable funds for cash:

iShares Short Treasury ETF (SHV)
SPDR Treasury bill ETF (BIL)
Gabelli U.S. Treasury Money Market (GABXX)

Also, stated was using United States savings bond.

In sum, for those of you following what is proscribed in the book (with no additional enhancements) how are you fulfilling the 25% cash portion of the portfolio?

Thanks
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Re: How do you invest the Cash portion?

Post by anato » Fri Jul 05, 2019 12:36 am

3 components for me:
1. I Bonds (every year, as many as I can get)
2. 1-3-6 months TBills in auto-roll at Fidelity
3. $10k-ish in a Fidelity cash account, in FDLXX

The dynamic is fairly easy: when the balance in the cash account reaches $11k (and no big expense is on the horizon), that $1k becomes a T-Bill (whichever has the best interest rate at the moment), ITOT, IJS (I have a Golden Butterfly, not a pure PP) o IAU.
Long term treasury bonds are all in the 401k and HSA (CA resident, so I need to avoid paying state taxes on that HSA), I don't keep cash in them except for the $1-2k building up for the next (mostly bond) purchase.
Once a year, I ransack the T-Bills to get as many I Bonds as I can.
Rinse and repeat.

If some big expense is on the horizon (e.g. new car), I just make sure I keep that money ready available in either the cash account or (if not happening in the next month or so) T-Bills, in excess of my target 20% allocation.
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Re: How do you invest the Cash portion?

Post by boglerdude » Fri Jul 05, 2019 3:27 am

Welcome to the forum OP
I use ibonds and Orion's 4% checking
With some effort you can buy more than 10k ibonds or EE bonds each year
https://www.bogleheads.org/forum/viewtopic.php?t=213142
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dualstow
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Re: How do you invest the Cash portion?

Post by dualstow » Fri Jul 05, 2019 7:35 am

Vanguard Treasury Money Market for the core;
ladder of treasury bills and short-term treasury notes bought directly thru Vanguard.
RIP Paul Volcker
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jhogue
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Re: How do you invest the Cash portion?

Post by jhogue » Fri Jul 05, 2019 2:57 pm

Welcome to the forum.

I think the above suggestions will probably work out just fine for you.

That said, consider the following points:

1. Keep in mind that the purpose of Cash in the PP is to always hold the safest and most liquid asset possible in case one of the three volatile assets exceeds its 35/15 bands and needs to be rebalanced. Cash will smooth out your portfolio returns over time.

2. Investors in the HBPP have discovered that one of the four assets will almost invariably lags the others. Right now, that lagging asset is Cash. That makes it tempting to make the mistake of chasing yields in Cash by trying to substitute higher-yielding securities like unbreakable CDs or intermediate term Treasurys in place of more liquid, shorter-duration Treasurys. Don’t do it.
“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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ochotona
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Re: How do you invest the Cash portion?

Post by ochotona » Sat Jul 06, 2019 9:18 am

I'm disappointed Ally's savings rate went down to 2.10%, but they function well from a customer service standpoint. They have 4.5 stars on DepositAccounts.com. I can't see changing to CIT or Synchrony in order to chase 20 basis points. CIT has only a 3 star rating, with 291 reviews, so that means something. I guess I can push more $$$ over to T-Bills at Fidelity.
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sophie
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Re: How do you invest the Cash portion?

Post by sophie » Sat Jul 06, 2019 2:29 pm

Check out the numerous threads on cash. There are so many options it's ridiculous. It depends on your time horizon, tax situation, and how much you value simplicity. One approach is to divide your cash allocation into thirds: the top third is easily accessible cash (savings account, money market fund), the bottom "deep" third can be long-term holdings like Series I bonds or 5 year CDs, and the middle third is, well, middle (e.g. autorolled Treasury bills).

I happen to have high state/local taxes, so the highest yield for me right now is the one month Treasury bill, which I hold at Fidelity on autoroll. I use treasury money markets (Vanguard and Fidelity) and series I savings bonds also.
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Re: How do you invest the Cash portion?

Post by dualstow » Sat Jul 06, 2019 5:36 pm

ochotona wrote:
Sat Jul 06, 2019 9:18 am
I'm disappointed Ally's savings rate went down to 2.10%,
TD sent me an offer of a $500 bonus if I deposit 20K. So 2.5% After that, the savings rate is 0.10% I looked up Ally’s rate because I have checking with them and thought, ooh, 2.10%, not bad. (There are other offerings from TD that are higher, but without the bonus, I think).

Not really worth opening and closing accounts.
RIP Paul Volcker
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sophie
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Re: How do you invest the Cash portion?

Post by sophie » Sun Jul 07, 2019 10:11 am

Eh. Vanguard Treasury money market yields more than that, plus no state/local tax. Current 7-day yield 2.22%. For me, any of the Treasury-based cash options beats any online savings account, because of the tax exempt thing.

I've emptied out my Ally accounts and now use my Chase account & a Fidelity brokerage for all checking/savings functions, and I love it. It was worth a lot to have one less login to worry about. The Chase account is basically a conduit to Fidelity - I keep it mainly so I can access real banking services when the need arises. Fidelity lets you create additional brokerage accounts, so I have one for daily use that is firewalled from my main investment account. It serves double duty as both checking and a high-yield savings account. It's great because this gets around the 6 transaction limit for savings accounts, and you have lots of flexibility within the account.

A word of warning though - Fidelity's software is glitchy and can fail at any time. They have this fancy scheme where they'll draw on another account if needed to cover a payment, but it occasionally fails (happened this past April). I also found problems with their autoinvest feature not being properly recorded, and making duplicate transfers. If you do this keep things simple. Also don't bother with the CMA account unless you need it for ATM transactions.
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dualstow
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Re: How do you invest the Cash portion?

Post by dualstow » Sun Jul 07, 2019 4:22 pm

sophie wrote:
Sun Jul 07, 2019 10:11 am
Eh. Vanguard Treasury money market yields more than that, plus no state/local tax. Current 7-day yield 2.22%.
Darn, is it down to that already? It was 2.38% a week ot two ago. Even when you subtract the 0.09% ER, it’s been my favorite spot to hold cash.
RIP Paul Volcker
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sophie
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Re: How do you invest the Cash portion?

Post by sophie » Sun Jul 07, 2019 6:27 pm

1 month T bills are down to 2.26%, and the Vanguard fund is mostly that duration. Subtract 0.09% and there you go. The market is betting heavily on a Fed rate cut later this year, so it's getting priced in. I guess T bills will jump up (and some other things down e.g. gold) if the cut doesn't happen.
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Re: How do you invest the Cash portion?

Post by jacksonM » 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.
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