Cash Question / General Advice

[babysquirrel]

Hi -

Long-time troller first-time poster here. 

I am in the process of liquidating a 50K all individual stocks portfolio and re-allocating to a 4X25 DIY ETF PP.  My biggest question concerns the cash portion. What are the advantages/disadvantages of an ultra-short Treasury ETF (BIL, etc.) vs.  the current money market I have associated with my brokerage account, which is FDIC-insured (Merrill Lynch, 30 commission-free trades a month) for the cash portion??

As far as the other 3 funds,  I am leaning towards VTI, TLT, and IAU, and welcome any suggestions otherwise.

Thanks in advance...

[Ad Orientem]

Hi -

Long-time troller first-time poster here. 

I am in the process of liquidating a 50K all individual stocks portfolio and re-allocating to a 4X25 DIY ETF PP.  My biggest question concerns the cash portion. What are the advantages/disadvantages of an ultra-short Treasury ETF (BIL, etc.) vs.  the current money market I have associated with my brokerage account, which is FDIC-insured (Merrill Lynch, 30 commission-free trades a month) for the cash portion??

As far as the other 3 funds,  I am leaning towards VTI, TLT, and IAU, and welcome any suggestions otherwise.

Thanks in advance...

Hi and welcome to the forum! Big advantage is that T Bills have the explicit backing of the US Government (and its printing press) behind them. FDIC is not the US Government. Does that mean that bank accounts or FDIC insured money market funds aren't safe? No. But there are degrees of safety. T-Bills are as close to absolutely safe as you can get.

No issues with your choice of funds. I do encourage people over time to aquire and hold at least some of their gold in physical form. Gold is the ultimate insurance in an SHTF scenario. But an ETF is fine for starting out and also if you are fortunate enough to reach the point where you have so much gold you can't conveniently store it all yourself. 

[rocketdog]

Hi -

Long-time troller first-time poster here. 

I am in the process of liquidating a 50K all individual stocks portfolio and re-allocating to a 4X25 DIY ETF PP.  My biggest question concerns the cash portion. What are the advantages/disadvantages of an ultra-short Treasury ETF (BIL, etc.) vs.  the current money market I have associated with my brokerage account, which is FDIC-insured (Merrill Lynch, 30 commission-free trades a month) for the cash portion??

As far as the other 3 funds,  I am leaning towards VTI, TLT, and IAU, and welcome any suggestions otherwise.

Thanks in advance...

Howdy babysquirrel, and welcome aboard!  Sounds like you're off to a good start.  My take on the cash portion is that with only $12K I wouldn't get too caught up in picking an investment right now.  You can stay in a MM as long as you want, which gives you plenty of time to research your options more fully.  You're not going to eke out much of a return on something like BIL anyway, and no one has ever lost money in an FDIC-insured account (other than to inflation, ahem). 

TLT and IAU are fine choices.  You might think about adding a foreign gold ETF in the future as your PP grows, in order to hedge your holdings a bit.  Physical gold might not be an option for you yet due to the size of your portfolio, but I wouldn't rule it out if that interests you. 

VTI is also solid, although you may want to devote 5%-10% to a global fund to give you some foreign exposure; something like VEU would do the trick here.  But that's just a suggestion, depending on your comfort level. 

[babysquirrel]

thanks for the responses.  The next decision I have to make is whether to go the full 50K into PP or 40K into PP and 10K into VP.  I am leaning towards full PP just to not have to think/worry about it anymore.  Again, any thoughts welcomed...

[Ad Orientem]

thanks for the responses.  The next decision I have to make is whether to go the full 50K into PP or 40K into PP and 10K into VP.  I am leaning towards full PP just to not have to think/worry about it anymore.  Again, any thoughts welcomed...

That's a very personal decision and depends on your risk tolerances. Personally if you have enough money in reserve to ride out a couple years of hard times I would have no problem with putting 10-20% in a VP if you want to go that route. Just remember the four rules...

1. Never speculate with money you can't afford to lose.
2. Never dip into your PP to cover VP losses.
3. Never speculate in anything you don't understand.
4. Never speculate using margin or any other method that could lead to losses above what you initially committed.

[babysquirrel]

Great advice, thanks again...