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 » Mon Mar 16, 2020 8:21 pm

drumminj wrote:
Fri Dec 06, 2019 9:56 pm
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.


In 2020 have we yet achieved the status of "abnormal" times?

Vinny
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Re: How do you invest the Cash portion?

Post by vnatale » Mon Mar 16, 2020 8:41 pm

jhogue wrote:
Tue Dec 10, 2019 8:38 am
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.
That is the assumption I will making...

Vinny
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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Re: How do you invest the Cash portion?

Post by jalanlong » Thu Mar 19, 2020 8:51 pm

vnatale wrote:
Mon Mar 16, 2020 8:41 pm
jhogue wrote:
Tue Dec 10, 2019 8:38 am
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.
That is the assumption I will making...

Vinny
So does an ETF like SHV or BIL count as being safer than $$ in a bank?
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Re: How do you invest the Cash portion?

Post by pmward » Thu Mar 19, 2020 9:33 pm

jalanlong wrote:
Thu Mar 19, 2020 8:51 pm

So does an ETF like SHV or BIL count as being safer than $$ in a bank?
Absolutely. Remember that ETF's are less liquid than cash though. It's still worth keeping any short term liquidity you need in a bank or money market somewhere, where you do not have to wait for a clearing window to get access to the cash if you need it.
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Re: How do you invest the Cash portion?

Post by Smith1776 » Thu Mar 19, 2020 9:59 pm

I invest the cash portion of the PP using an ETF with the ticker ZFS.

I pronounce the letters in ZFS the same way you would chant "ONE OF US. ONE OF US. ONE OF US."
I still find the James Rickards portfolio fascinating.
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Re: How do you invest the Cash portion?

Post by mathjak107 » Fri Mar 20, 2020 5:05 am

as long as the same owners who own the printing machines are responsible for seeing to it that fdic and treasuries are paid i would think both are as good .. i can see a bit of delay though in restocking fdic.

i moved more than i would typically keep in local banks over to chase and cit .... the rest is now in fdlxx and bil .....i show the most cash i can remember ever holding ,,

stocks are still unsold and i actually added 100k to get back to 25% , but i cut the total bond funds and high yield by half . so cash levels are crazy .....

i took advantage of all the local promos like getting 1100 bucks from citibank
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Re: How do you invest the Cash portion?

Post by mathjak107 » Sat Mar 21, 2020 6:02 am

i am starting to think that with these short term bond funds like bil , one may be better in a treasury money market than a treasury etf ..... if rates flip negative i would think yields on bil will go negative ... money markets that at least conform to the standards will not break the buck .....

i really have no idea here what would happen with the etf's as bonds come due
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Re: How do you invest the Cash portion?

Post by jhogue » Sat Mar 21, 2020 3:42 pm

I just saw this notice on Fidelity's fixed income web page:

icon-exclamation-yellowtriangle-1x Recent extreme market conditions have resulted in a lack of liquidity, wide spreads (the difference between the price a customer can buy and sell a bond), large swings in prices, and substantial increases in pressure on trading systems. This can make it very difficult to determine fair and reasonable pricing on bonds. Fidelity continues to monitor the market environment and make every effort to ensure a fair and reasonable market for our customers.

In addition, the recent drop in interest rates has caused some Treasury securities to have negative yields. While active markets do exist for these securities, pricing may not be currently available on Fidelity.com. If you are interested in buying or selling Treasury securities and cannot locate an active market on Fidelity.com, please contact a Fixed Income Specialist at 800-544-5372.
“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 ochotona » Thu Apr 02, 2020 9:51 am

Across my entire portfolio, I have $350 in non-Treasury Money Market.
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Re: How do you invest the Cash portion?

Post by barrett » Fri Apr 03, 2020 8:17 am

ochotona wrote:
Thu Apr 02, 2020 9:51 am
Across my entire portfolio, I have $350 in non-Treasury Money Market.
I checked our accounts yesterday and we are at $242 in non-Treasury cash positions!
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Re: How do you invest the Cash portion?

Post by Genious Moran » Fri Apr 03, 2020 11:32 am

jhogue wrote:
Sat Mar 21, 2020 3:42 pm
I just saw this notice on Fidelity's fixed income web page:

icon-exclamation-yellowtriangle-1x Recent extreme market conditions have resulted in a lack of liquidity, wide spreads (the difference between the price a customer can buy and sell a bond), large swings in prices, and substantial increases in pressure on trading systems. This can make it very difficult to determine fair and reasonable pricing on bonds. Fidelity continues to monitor the market environment and make every effort to ensure a fair and reasonable market for our customers.

In addition, the recent drop in interest rates has caused some Treasury securities to have negative yields. While active markets do exist for these securities, pricing may not be currently available on Fidelity.com. If you are interested in buying or selling Treasury securities and cannot locate an active market on Fidelity.com, please contact a Fixed Income Specialist at 800-544-5372.
In addition to this, Fidelity closed FDLXX to new investors on Tuesday, I think.
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Re: How do you invest the Cash portion?

Post by foglifter » Fri Apr 03, 2020 1:56 pm

Genious Moran wrote:
Fri Apr 03, 2020 11:32 am
jhogue wrote:
Sat Mar 21, 2020 3:42 pm
I just saw this notice on Fidelity's fixed income web page:

icon-exclamation-yellowtriangle-1x Recent extreme market conditions have resulted in a lack of liquidity, wide spreads (the difference between the price a customer can buy and sell a bond), large swings in prices, and substantial increases in pressure on trading systems. This can make it very difficult to determine fair and reasonable pricing on bonds. Fidelity continues to monitor the market environment and make every effort to ensure a fair and reasonable market for our customers.

In addition, the recent drop in interest rates has caused some Treasury securities to have negative yields. While active markets do exist for these securities, pricing may not be currently available on Fidelity.com. If you are interested in buying or selling Treasury securities and cannot locate an active market on Fidelity.com, please contact a Fixed Income Specialist at 800-544-5372.
In addition to this, Fidelity closed FDLXX to new investors on Tuesday, I think.
Yes, I got an email alert about FDLXX. Apparently too many investors learned to appreciate the safety of a Treasury-only MMF. Thankfully I have it in my taxable and HSAs. 8)
"Let every man divide his money into three parts, and invest a third in land, a third in business, and a third let him keep in reserve."
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Re: How do you invest the Cash portion?

Post by mathjak107 » Sat Apr 04, 2020 4:55 am

we are holding a lot of cash now , most being reinvested in drips and drabs .

we have about 1 million in fdlxx , and 500k in gov't money markets and banks . these are the highest cash levels i can ever remember having ...

with bond funds that are not treasuries being beat up i pulled about 1/2 out of total and corporate bond funds and prefer cash , until i re-deploy it all ..


i much prefer high yield at this stage ..the high yield funds have been beaten up so badly , like every company will default ... some are paying over 7% interest .....

i find that safer then total or corporate bond funds where they are mostly BBB ... the last rung of investment grade ...the big difference is not only the higher rate on high yield but high yield is already "junk bonds " .

one slip from BBB and investment grade gets down graded to junk ... that will be a nasty drop in value ... high yield is already priced as junk .

so each drop i have been adding equities and high yield . although i do own tlt and gld at the moment too .

i think high yield may actually beat equities this year like 2016 where my fidelity high yield fund returned 19%
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Re: How do you invest the Cash portion?

Post by Libertarian666 » Sat Apr 04, 2020 7:34 pm

mathjak107 wrote:
Sat Apr 04, 2020 4:55 am
we are holding a lot of cash now , most being reinvested in drips and drabs .

we have about 1 million in fdlxx , and 500k in gov't money markets and banks . these are the highest cash levels i can ever remember having ...

with bond funds that are not treasuries being beat up i pulled about 1/2 out of total and corporate bond funds and prefer cash , until i re-deploy it all ..


i much prefer high yield at this stage ..the high yield funds have been beaten up so badly , like every company will default ... some are paying over 7% interest .....

i find that safer then total or corporate bond funds where they are mostly BBB ... the last rung of investment grade ...the big difference is not only the higher rate on high yield but high yield is already "junk bonds " .

one slip from BBB and investment grade gets down graded to junk ... that will be a nasty drop in value ... high yield is already priced as junk .

so each drop i have been adding equities and high yield . although i do own tlt and gld at the moment too .

i think high yield may actually beat equities this year like 2016 where my fidelity high yield fund returned 19%
Most of the BBB stuff should be rated as junk already but the rating services are slow to downgrade it. As you suggest, when they do, look out below.
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Re: How do you invest the Cash portion?

Post by CT-Scott » Thu Apr 16, 2020 8:27 am

Other than cash in a few bank accounts, all of our savings are in 401k accounts and Roth IRAs. I did something drastic (and not conforming with the HBPP philosophy) and sold everything on 2/27 inside of our Roth IRAs, so that's now sitting in MM funds. Inside of our largest 401k accounts, we moved everything to the one Stable Value fund that was offered by each of our 401k providers, as I was/am under the belief that the Stable Value fund was the "safest" option available.

Some questions:

1) Just how "safe" can I expect these Stable Value funds to be? I read somewhere that a Stable Value fund inside of a 401k is "insured", which is part of what makes it the safest choice. But when I spoke to an adviser at Fidelity (my employer's 401k provider) he seemed uncertain about that (I didn't get the impression that he was 100% knowledgeable about it). FWIW, the one Stable Value fund in my account is the Wells Fargo Stable Value fund. I can provide more details if it would be helpful. From what I can gather, it looks like I might be getting about a 2.5% annual return (currently) on that.

2) I believe I've read before that a 401k's Stable Value fund qualifies as "Cash" from a PP perspective. True?

3) Other options inside of my 401k would be a couple of bond funds that are all/mostly Treasuries (VSIGX and ABTIX). Should I consider moving some of my Stable Value funds over to those? Or wait until Treasury yields look better?

4) The PP calls for 25% in long-term treasuries, but I don't believe the Treasury fund options inside my 401k (noted in #3) are restricted to *only* long-term Treasuries.

I read about the HBPP many years ago and liked the idea (leading to me moving all of my money in one of my smaller 401k accounts to PRPFX), but that didn't seem to gain me much, so I moved it back out of PRPFX and into all-stocks a few years later. Now that I'm revisiting this forum and reading up on things more, I still like the concept of the HBPP, but I think I'm learning that it's not really possible to follow it properly if most/all of your investment funds are inside of a 401k / Roth IRA.
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Re: How do you invest the Cash portion?

Post by CT-Scott » Fri Apr 17, 2020 7:13 pm

No replies to my question? Bumping the thread.
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Re: How do you invest the Cash portion?

Post by vnatale » 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.

Vinny
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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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
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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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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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.
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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....

Vinny
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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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
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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