My Wild and Crazy Idea for 2012

[dualstow]

This board is generally very kind, even more tempered than Bogleheads, so I hope you'll be gentle. My wild and crazy idea is this: I'm actually going to hold 25% of my wealth in cash. Well, 20-25% of my permanent portfolio (pp), that is. I'm going to hold 25% in gold and gold ETFs like GTU and PHYS. Another 25% is going into stocks, and the final fourth goes into bonds.

Before you lambaste me, it gets crazier: the bonds are going to be U.S. Treasurys! 30-year ones! Don't talk to me about the imminence of rising interest rates. Not only am I crazy, I'm also stubborn. I've been doing this for a while, you see, and I'm going to stick to it.

The cash portion is really going to be cash: SHY, SHV and Vanguard's treasury money market fund. I've decided that instead of checking out what state-specific munis can give me better yield, I'm going to lounge on the daybed and read the paper. Ignoring the sneers and laughs of my neighbors, I'm going to relegate my small muni holdings to my variable portfolio (vp).

You're doing a good job of holding your tongue, and I promise I'm not just trying to push your buttons when I say that in addition to being crazy and stubborn, I am also quite lazy. You see, while I have some individual stocks in my vp, I'm going to keep my pp's stock allocation in index funds VBR (small value), VTI (total domestic stock market) and Vanguard's S&P fund. Yes, the very same one that did little to nothing for the last decade.

Say what you want, but please don't try to "help" me or stage an intervention. I'm beyond repair, and well beyond the reach of your good intentions.

[melveyr]

interesting idea

Have you thought about taking out a 30 year mortgage and going 50% SCV and 50% EM? Rates are so low!!!11

[AgAuMoney]

Sounds good to me.

One thing to ask yourself tho...  Do you pay transaction costs going into or out of SHV?  I gave up on SHV because the added return over the money market fund did not justify the transaction costs.  I ended up dividing the 25% cash into 3 lumps, and put 2 of the three into SHY and left the 3rd lump in a money market.

I'm not at Vanguard, so if you are then your costs and returns will likely be different from mine.

I've considered a new mortgage, but not to get cash out.  I would be able to drop 1% at least, maybe up to 2% from my current rate.  That would reduce my monthly cash flow thus freeing up funds to invest.  I currently have about 12 years left on my mortgage, so another approach would be sign up for an ARM with a 5yr or 7yr lock and put the extra monthly cash to paying off the mortgage early, but the rate benefit of an ARM compared to fixed rate is not that great right now.  I'm less inclined to do early pay off as I expect inflation, so a fixed rate mortgage paid off over the years with less valuable money seems like a more profitable approach.

[dualstow]

interesting idea

Have you thought about taking out a 30 year mortgage and going 50% SCV and 50% EM? Rates are so low!!!11

lol

One thing to ask yourself tho...  Do you pay transaction costs going into or out of SHV?
..I'm not at Vanguard, so if you are then your costs and returns will likely be different from mine.

I'm at Vanguard. At least, my cash is.

[Lone Wolf]

You're going to buy a shiny lump of metal that yields no interest?  What do you think you are, a pirate?  Some kind of phraraoh?  A central bank?

If you'd instead just put that money into Portuguese bonds, that'll get you a cool 13% per year.  Think about all that money you're leaving on the table by not doing this!  Sure, you might lose all your money but what's life without a little high anxiety?  And how about getting some derivatives in there?

It sounds like you just don't have enough creative ideas.  If you are looking for some suggestions on how to build a proper portfolio, please see the "Suicide Portfolio" contest.  We'll get you set straight!

I've decided that instead of checking out what state-specific munis can give me better yield, I'm going to lounge on the daybed and read the paper.

Very irresponsible on your part to prioritize enjoying your life ahead of staying up into the wee hours fretting and stressing over your fragile, slapdash portfolio.  If you're not in there buying high and selling low (or is it the other way around -- can never keep it straight) who will?  Those hypnotic stock ticker charts aren't going to watch themselves, you know!

[shoestring]

Madness!

Could not wait a couple weeks for April 1?

[alvinroast]

I'm sooo disappointed. I read into the third paragraph thinking you meant that you were keeping 25% in CASH. Finding that you really meant Treasury MMF was a letdown. I was looking forward to reading about your new high tech security system to deal with the cash.

Seriously though, I'm becoming more and more convinced that keeping at least 1% in literal cash makes since. There's always the black swan events of an EMP wiping out the ATMs or a bank holiday, etc. Since the PP includes your emergency fund it seems prudent that some of that should be in easily accessible FRN cash.

[Khisanth]

Hah yeah I thought you were going to be holding 25% of your portfolio in a briefcase filled with $100 bills.

[dualstow]

Thanks for the replies, guys. You did not disappoint! : - )