Best current options for cash and STT's?

Discussion of the Cash portion of the Permanent Portfolio

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jhogue
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Re: Best current options for cash and STT's?

Post by jhogue » Wed Oct 14, 2020 10:00 am

barrett wrote:
Wed Oct 14, 2020 8:28 am
jhogue wrote:
Fri Sep 11, 2020 5:18 pm
My target Cash position, consisting of equal parts FDLXX/ 1 yr. T-bills/ I-Bonds, is very similar. Over the past year I have stopped buying T-bills and shifted toward FDLXX/ 0 / I-bonds as T-bill yields have fallen to close to 0%.
Has Fidelity waived the .42% expense ratio on FDLXX? If so, that fund would make a lot of sense for my Fido cash position.
Barrett,

Fidelity responded to the Treasury yield curve collapse earlier this year by closing FDLXX to new investors and informing its investors that it would begin reimbursing expenses or waiving fees to keep FDLXX and some of its other money market funds from having a negative yield. It has since reopened to new investors, but has not reduced its expense ratio of 0.42%, among the highest of the industry.

To paraphrase Winston Churchill, I consider FDLXX to be the worst possible Treasury Money Market Fund—except for all others. Other candidates (SPAXX or VUSXX, for instance) have loaded up on unsuitable derivative securities like bank repos (supposedly collaterlized by T-bills) or agency debt ( a step down in terms of credit risk). The bottom line for me is that I use FDLXX—but I am watching them closely.
“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: Best current options for cash and STT's?

Post by barrett » Wed Oct 14, 2020 10:51 am

jhogue wrote:
Wed Oct 14, 2020 10:00 am
barrett wrote:
Wed Oct 14, 2020 8:28 am
jhogue wrote:
Fri Sep 11, 2020 5:18 pm
My target Cash position, consisting of equal parts FDLXX/ 1 yr. T-bills/ I-Bonds, is very similar. Over the past year I have stopped buying T-bills and shifted toward FDLXX/ 0 / I-bonds as T-bill yields have fallen to close to 0%.
Has Fidelity waived the .42% expense ratio on FDLXX? If so, that fund would make a lot of sense for my Fido cash position.
Barrett,

Fidelity responded to the Treasury yield curve collapse earlier this year by closing FDLXX to new investors and informing its investors that it would begin reimbursing expenses or waiving fees to keep FDLXX and some of its other money market funds from having a negative yield. It has since reopened to new investors, but has not reduced its expense ratio of 0.42%, among the highest of the industry.

To paraphrase Winston Churchill, I consider FDLXX to be the worst possible Treasury Money Market Fund—except for all others. Other candidates (SPAXX or VUSXX, for instance) have loaded up on unsuitable derivative securities like bank repos (supposedly collaterlized by T-bills) or agency debt ( a step down in terms of credit risk). The bottom line for me is that I use FDLXX—but I am watching them closely.
Thanks for that, jhogue. I am curious as to why you wouldn't just buy 1-3 month T-Bills instead of FDLXX. I mean, they earn next to nothing but at least one does not lose money with that option (at least not so far).
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Re: Best current options for cash and STT's?

Post by jhogue » Wed Oct 14, 2020 3:46 pm

Good question, barrett. From an HBPP technical standpoint, I don’t think there is anything wrong with using 1-3 month T-bills for Cash as you have described. The only problem is that doing so is practically guaranteed to earn a negative real rate of interest over the coming year, given the Fed’s announced policy to create an inflation rate of 2%.

So, this is how I have decided to deal with the Fed’s crushing ZIRP and its effect on Cash:

1. FDLXX’s yield is terrible right now—even worse that 1 year T-bills—but it may be slightly more safe and liquid than a roll-your-own personal pile of 1 year T-bills because a TMMF undoubtedly holds a broader distribution of securities and certainly has access to more cash via Fidelity’s $1 trillion in money market funds under management.

2. My target Cash distribution was equal parts FDLXX/1 year T-bills/ I-bonds last year. This year I shut off the auto-roll T-bills as the 1 year T-bill rate declined from 1.00% to 0.10%. I have gradually shifted my Cash toward equal parts FDLXX/ I-bonds. I rely on FDLXX for safety and liquidity and I-bonds for Deep Cash/ higher yield, which I think will earn a positive real rate of return over the next year, and probably longer . The bulk of my laddered I-bonds are now mature enough that if I had to I could redeem some of them to meet a rebalance, though I think that is very unlikely.

If 1 year T-bills go back above 1.00% I could re-start the auto-roll. I have no idea when that might happen.
“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: Best current options for cash and STT's?

Post by johnnywitt » Sat Oct 24, 2020 6:31 pm

jhogue wrote:
Wed Oct 14, 2020 3:46 pm
Good question, barrett. From an HBPP technical standpoint, I don’t think there is anything wrong with using 1-3 month T-bills for Cash as you have described. The only problem is that doing so is practically guaranteed to earn a negative real rate of interest over the coming year, given the Fed’s announced policy to create an inflation rate of 2%.

The FED has about as much chance of creating inflation as the Easter Bunny. The FED is probably the biggest Bunch of bullshitters in history.
If anything, the FED is designed more as an inflation killing machine.
Don't believe me, then own GOLD... oh wait, you already do ;D
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Re: Best current options for cash and STT's?

Post by boglerdude » Sat Oct 24, 2020 10:17 pm

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Re: Best current options for cash and STT's?

Post by sophie » Sun Oct 25, 2020 8:53 am

The only problem with using T bills as a cash substitute is that selling them could be harder than you think. I found that there are a lot of barriers to selling bonds at Fidelity that are not described anywhere on their website. And, to cancel an Autoroll you have to either call Fidelity (1-2 hours on the phone) or wait for the new purchase order to pop up online. It has a window of a few hours where you can cancel.

That's why I switched to zero-yielding FDLXX. All that hassle is just not worth a few dollars a year. Look to I Bonds if you want yield.
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Re: Best current options for cash and STT's?

Post by vnatale » Sun Oct 25, 2020 12:07 pm

sophie wrote:
Sun Oct 25, 2020 8:53 am
The only problem with using T bills as a cash substitute is that selling them could be harder than you think. I found that there are a lot of barriers to selling bonds at Fidelity that are not described anywhere on their website. And, to cancel an Autoroll you have to either call Fidelity (1-2 hours on the phone) or wait for the new purchase order to pop up online. It has a window of a few hours where you can cancel.

That's why I switched to zero-yielding FDLXX. All that hassle is just not worth a few dollars a year. Look to I Bonds if you want yield.
Can you explain why this amount of time?

Vinny
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Re: Best current options for cash and STT's?

Post by pp4me » Sun Oct 25, 2020 1:03 pm

vnatale wrote:
Sun Oct 25, 2020 12:07 pm
sophie wrote:
Sun Oct 25, 2020 8:53 am
The only problem with using T bills as a cash substitute is that selling them could be harder than you think. I found that there are a lot of barriers to selling bonds at Fidelity that are not described anywhere on their website. And, to cancel an Autoroll you have to either call Fidelity (1-2 hours on the phone) or wait for the new purchase order to pop up online. It has a window of a few hours where you can cancel.

That's why I switched to zero-yielding FDLXX. All that hassle is just not worth a few dollars a year. Look to I Bonds if you want yield.
Can you explain why this amount of time?

Vinny
I've been holding T-Bills in a taxable account at Fidelity for a long time and have never had any problem.

Now that I think of it however, I've probably held them all to maturity and never sold any prematurely so maybe that's why I haven't seen anything like this. I have sold LT's before maturity in an IRA however and never had any issues. Just did that a couple of months ago.
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Re: Best current options for cash and STT's?

Post by sophie » Sun Oct 25, 2020 5:10 pm

You probably got lucky, pp4me. I have tried to sell bills/bonds several times. In one case I ran into a problem where I had bought a lot in an amount less than $10K, but the software insisted I needed to sell an amount of at least $10K. A few months later I was finally (after multiple attempts) able to sell it. In another case, I kept getting a message that the bond market was closed (even though it wasn't at the time).

Vinny, since I'm not in charge of Fidelity's customer service I can't tell you why phone calls take hours. Perhaps you should call them and ask.
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Re: Best current options for cash and STT's?

Post by vnatale » Sun Oct 25, 2020 5:25 pm

sophie wrote:
Sun Oct 25, 2020 5:10 pm
You probably got lucky, pp4me. I have tried to sell bills/bonds several times. In one case I ran into a problem where I had bought a lot in an amount less than $10K, but the software insisted I needed to sell an amount of at least $10K. A few months later I was finally (after multiple attempts) able to sell it. In another case, I kept getting a message that the bond market was closed (even though it wasn't at the time).

Vinny, since I'm not in charge of Fidelity's customer service I can't tell you why phone calls take hours. Perhaps you should call them and ask.
I was more interested in an answer along the lines of this is common to my experience with them or it was because I was doing something special that required this amount of time.

I'd always prior read that Fidelity's customer service is superior to Vanguard's so reading what you wrote is of concern to me.

I've been with Vanguard (extensively) for over 30 years and only opened an account with Fidelity last year without yet funding it with anything. Therefore, I have no experience with Fidelity's customer service other than that one night I called to open the account. During the call had a nice discussion with a fellow baseball fan who was lamenting that my New York Yankees had got three of his Colorado Rockies players.

Vinny
"I only regret that I have but one lap to give to my cats."
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Re: Best current options for cash and STT's?

Post by tomfoolery » Mon Oct 26, 2020 1:25 am

sophie wrote:
Wed Sep 09, 2020 1:31 pm
A note on Treasury-only money markets: they are all closed to new investors, so if you don't already have it set up, you'll have to wait a few years to jump in. Also, VUSXX (Vanguard's Treasury MM) had a $50K minimum initial investment. Fidelity (FDLXX) dropped its $25K minimum a year or two ago, but I imagine they will reinstate it when the fund reopens.
Pro-Tip, I ran into this problem a decade ago, the last time rates hit zero. And I was interested in the PP at the time. So I vowed once rates rose enough that VG re-opened the fund, I would put money in there to maintain access.

My experience with VG is that for minimum-deposit funds like this $50k treasury MMF, you can put $50k in and take out $49.9k and leave $100 in there and it's fine. And you can deposit more money at any time after that since you are grandfathered in.

So I totally didn't do that when it re-opened a few years back. And as COVID hit, I knew it was bound to close again so I finally made the move of $50k about a week before they closed it again. I moved $49k out, kept $1k in and it's still there. I was thinking I might put in another $10k for two reasons:

1) In case they do decide to close funds whose balance dropped below $50k, maybe the safe threshold becomes $10k. At the very least from a statistical standpoint, I'm marginally safer with $10k than $1k from whatever arbitrary level they might enforce.

2) Gives me an opportunity to buy stocks in case the market crashes 30% or something crazy. Perhaps my primary brokerage website is down, as has happened to many brokers this year during high volatility. But if I can get into VG before 4pm eastern, I can tell them to take my $10k and buy an SP500 fund at market close. Not sure how that works if the market safety triggers kick in and trading is halted. Since mutual funds trade differently. I should find out before it happens, since the chances of it happening are non-zero.
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Re: Best current options for cash and STT's?

Post by mathjak107 » Mon Oct 26, 2020 5:35 am

vnatale wrote:
Sun Oct 25, 2020 5:25 pm
sophie wrote:
Sun Oct 25, 2020 5:10 pm
You probably got lucky, pp4me. I have tried to sell bills/bonds several times. In one case I ran into a problem where I had bought a lot in an amount less than $10K, but the software insisted I needed to sell an amount of at least $10K. A few months later I was finally (after multiple attempts) able to sell it. In another case, I kept getting a message that the bond market was closed (even though it wasn't at the time).

Vinny, since I'm not in charge of Fidelity's customer service I can't tell you why phone calls take hours. Perhaps you should call them and ask.
I was more interested in an answer along the lines of this is common to my experience with them or it was because I was doing something special that required this amount of time.

I'd always prior read that Fidelity's customer service is superior to Vanguard's so reading what you wrote is of concern to me.

I've been with Vanguard (extensively) for over 30 years and only opened an account with Fidelity last year without yet funding it with anything. Therefore, I have no experience with Fidelity's customer service other than that one night I called to open the account. During the call had a nice discussion with a fellow baseball fan who was lamenting that my New York Yankees had got three of his Colorado Rockies players.

Vinny
my worst customer service experience was those clowns at vanguard .. 33 years at fidelity and no issues ever .
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