How do you invest the Cash portion?

Discussion of the Cash portion of the Permanent Portfolio

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drumminj
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Re: How do you invest the Cash portion?

Post by drumminj » Sat Nov 30, 2019 4:59 pm

jhogue wrote:
Sat Nov 30, 2019 3:41 pm
EE bonds can be redeemed for more than their nominal value after one year. 5 year CDs cannot.
I'll challenge this. If the CDs have a 6month interest penalty (which the CDs I mentioned that started this thread do), then you can break them after a year for more than their nominal value. You'd get your money back, plus 6 months interest. Which, if the interest rate is twice what you can get with shorter-term instruments, you come out even.

I think you can make a safety argument against CDs (relies on a party not as credit-worthy as the US government, though arguably FDIC has the treasury/fed reserve behind it), but I don't see that your liquidity argument holds up here.
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Re: How do you invest the Cash portion?

Post by mathjak107 » Sun Dec 01, 2019 5:42 am

today pretty much a good prime money market from any of the major brokerages is fine .with the restrictions on them today the issues of the past are gone .

i put this about on par with buying gld , iau , etc for the gold portion . in the end they will likely be just fine ....

i already owned a money market that broke the buck and was closed back in 2008 .. but the stuff they were allowed to buy back then is no longer the case .

the same money printers that guarantee treasuries will be the same printers that guarantee other gov't bonds and also fdic payments to banks .
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Re: How do you invest the Cash portion?

Post by dualstow » Sun Dec 01, 2019 8:59 am

mathjak107 wrote:
Sun Dec 01, 2019 5:42 am
i already owned a money market that broke the buck and was closed back in 2008 ..
You're in good company.
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sophie
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Re: How do you invest the Cash portion?

Post by sophie » Sun Dec 01, 2019 3:55 pm

Yes, that's the problem - when you say you're in the accumulation phase, you're in it Right Now, but maybe not a month from now. All it takes is getting laid off or disabled for you to be shot straight into the withdrawal phase. In addition to all the poor souls in 2008-2009 who defaulted on their house payments after getting laid off, check out the threads on the Money Mustache forum with titles like "I lost my job now what?" - this stuff happens all the time. So I don't really subscribe to the idea of different investment structures for the accumulation vs withdrawal phases.

pugchief - I don't get the concern with I bonds, but I hear you on the EE bonds. I personally haven't bought any of those. Note though that if I lost my job tomorrow and my living expenses didn't change, it would be over a year before I'd get around to the savings bonds. And some of mine are over 5 years old, so no penalty at all for selling. I'd almost certainly have to rebalance into cash before I got down to the ones less than 5 years old.
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Re: How do you invest the Cash portion?

Post by pugchief » Sun Dec 01, 2019 4:35 pm

At today's rates on I bonds, there are just more desirable ways to invest cash. IMHO.

I do own some I bonds that I purchased in late 2001 when the fixed rate was 2% (Dang it, if I had bought a month earlier, it would have been 3%!). Now if JHogue can get me that deal on an I bond today, I will buy more.
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Re: How do you invest the Cash portion?

Post by boglerdude » Sun Dec 01, 2019 8:58 pm

> At today's rates on I bonds, there are just more desirable ways to invest cash

Which are? ibonds are risk free 2.22%
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Re: How do you invest the Cash portion?

Post by jhogue » Sun Dec 01, 2019 9:00 pm

I would like to oblige Pugchief with better fixed rates on I-bonds, but neither our super-low yield curve nor the current crop of Trump Treasury officials support that. In fact, I am pessimistic about the future of the US savings bonds program, given the Goldman Sachs background and outlook of Treasury Secretary Steve Mnuchin. Encouraging the Great American public to save more just isn’t on his radar.

With regard to EE bonds, I still think they are a great buy for specific liability matching needs, such as saving for college or funding early retirement. Of course, before buying EE bonds, investors should max out all other tax-deferred accounts first (401k, 457b, Roth IRAs, and I-bonds). Buying EE bonds also takes a long-term view and patience—qualities that do not characterize either baby boomers or millenials.
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Re: How do you invest the Cash portion?

Post by pugchief » Mon Dec 02, 2019 7:59 am

boglerdude wrote:
Sun Dec 01, 2019 8:58 pm
> At today's rates on I bonds, there are just more desirable ways to invest cash

Which are? ibonds are risk free 2.22%
You only get that rate if you hold for 5 years and don't pay a penalty. There are 5 year CDs available now paying more than that. I personally want my cash to be instantly liquid, so a STT fund or high yield online savings account would be my choice, even if the yield is lower.
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Re: How do you invest the Cash portion?

Post by jhogue » Tue Dec 03, 2019 9:45 am

So, for that miniscule difference, why bother taking the credit risk of the CD-issuing bank PLUS the credit risk of the FDIC?

If all you really care about is a higher interest rate, I am sure there must be some really red-hot CD rates from Venezuelan banks right now. Adios, amigos!
“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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sophie
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Re: How do you invest the Cash portion?

Post by sophie » Tue Dec 03, 2019 10:17 am

pugchief wrote:
Mon Dec 02, 2019 7:59 am
boglerdude wrote:
Sun Dec 01, 2019 8:58 pm
> At today's rates on I bonds, there are just more desirable ways to invest cash

Which are? ibonds are risk free 2.22%
There are 5 year CDs available now paying more than that.
Can you share? The highest 5 year CD that I can find is paying 2.15%. This is effectively much worse than I bonds for me, as they are subject to state and local taxes. I bonds are not PLUS they're tax deferred. This is another substantial benefit for me...potentially another 10% or greater tax savings on top of the 11% with state/local.

Also, you pay the same 3 month interest penalty (and possibly more) with a 5 year CD if you break it early. So I'm not quite following your logic here? Also, all CD agreements have a little gotcha buried in them to the effect that the bank can deny or delay your request to cash in a CD before maturity. Treasury direct has no such limitations on selling an I bond.

The one advantage of a CD is that if inflation rates drop, I bond interest will drop accordingly but the CD will remain constant. Of course it works the other way too, if interest rates rise. And of course you can break the CD in year 1 if you choose to. But if you're buying a 5 year CD (or an I bond) you hopefully have at least a year's worth of expenses socked away in a more liquid form, such as a savings account or money market fund.
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Re: How do you invest the Cash portion?

Post by pugchief » Tue Dec 03, 2019 4:49 pm

sophie wrote:
Tue Dec 03, 2019 10:17 am
pugchief wrote:
Mon Dec 02, 2019 7:59 am
boglerdude wrote:
Sun Dec 01, 2019 8:58 pm
> At today's rates on I bonds, there are just more desirable ways to invest cash

Which are? ibonds are risk free 2.22%
There are 5 year CDs available now paying more than that.
Can you share? The highest 5 year CD that I can find is paying 2.15%. This is effectively much worse than I bonds for me, as they are subject to state and local taxes. I bonds are not PLUS they're tax deferred. This is another substantial benefit for me...potentially another 10% or greater tax savings on top of the 11% with state/local.

Also, you pay the same 3 month interest penalty (and possibly more) with a 5 year CD if you break it early. So I'm not quite following your logic here? Also, all CD agreements have a little gotcha buried in them to the effect that the bank can deny or delay your request to cash in a CD before maturity. Treasury direct has no such limitations on selling an I bond.

The one advantage of a CD is that if inflation rates drop, I bond interest will drop accordingly but the CD will remain constant. Of course it works the other way too, if interest rates rise. And of course you can break the CD in year 1 if you choose to. But if you're buying a 5 year CD (or an I bond) you hopefully have at least a year's worth of expenses socked away in a more liquid form, such as a savings account or money market fund.
For instance, here is a 55 month at 2.6% or 84 month at 3.05% https://www.andrewsfcu.org/Learn/Resour ... cate-Rates. And I bonds are illiquid for 1 year, where as a CD is not. Also not sure the govt FDIC would allow default any differently that the US govt with treasuries.
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jhogue
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Re: How do you invest the Cash portion?

Post by jhogue » Tue Dec 03, 2019 6:27 pm

Did you read the fine print? :

"Special 55-Month Certificate offer and stated APY may change at any time. APY effective August 14, 2019, is 2.60%; interest rate is 2.575%. Certificate has a $1,000 minimum and a $250,000 maximum balance. Must maintain a minimum $1,000 balance to earn the advertised APY. At maturity, all 55-Month Certificates will automatically renew at the 60-Month share certificate rate and term. Each individual member limited to one Special 55-Month Certificate. The Special 55-Month Certificate has a penalty equal to 360 days of dividends"

Doesn't look like such a great deal, especially the penalty for breaking the CD.
“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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