Gyroscopic Investing

Pointedstick wrote: Just replaced my TLT position with a bunch of 2.75% 30 year treasuries. Tortoise, how do you handle cash? Do you just manually make a bond ladder or regularly repurchase T-bills? Unless I've missed it (very possible), Schwab doesn't seem to have an automatic laddering tool or anything.

Congrats, that was quick!  Now for some T-bills and/or short term secondary market treasuries...if there is no auto rollover, it's not that big a deal to repurchase them once they mature.  They probably have an email alert system.

Which brings up another question:  how did your TLT position liquidate into accessible funds so quickly?  Fidelity likes to hold up funds for a minimum of 3 days.  If there was a reinvestment resulting in a fractional share, it takes 1-2 weeks to settle.  Most annoying.  I thought it was due to regulations, not Fidelity in particular.

I've had varying experience with different brokerages. Vanguard transactions seem to take 3 days to settle, while TDAmeritrade and eTrade typically settle in a day but give you immediate access to the funds. Schwab does too, apparently.

Pointedstick wrote: Just replaced my TLT position with a bunch of 2.75% 30 year treasuries. Tortoise, how do you handle cash? Do you just manually make a bond ladder or regularly repurchase T-bills? Unless I've missed it (very possible), Schwab doesn't seem to have an automatic laddering tool or anything.

Congrats! It's a nice, secure feeling to own those Treasury bonds directly, isn't it?

Currently I actually don't hold any cash in my retirement accounts since pretty much all my cash is in taxable (emergency fund and other savings). So if you set up a T-bill ladder in your Schwab brokerage account, I'd be very interested in knowing how you did it since I may want to set one up in my 401(k) eventually.

The main thing that makes me reluctant to set up a T-bill ladder in my taxable emergency fund is that it seems like it might be kind of a pain to sell all the T-bills in an emergency. So I use SHV instead. By contrast, long-term bonds usually go for very long periods without needing to be sold, so holding those directly seems like more of a no-brainer to me.

I think I might just sell all the SCHO, buy some T-bills, and then replace them when they mature. Slightly more annoying than a fund since I'll have to remember to do this, but then again I have to remember to buy more shares twice a month anyway, so I guess it's a wash. It's also slightly annoying that the coupon payments can't be automatically reinvested like with a fund. Oh well.

Do people typically buy the 30-day bonds, or something with a little higher duration?

HB recommended buying the 1 year variety.  Since this is a 401K, that should be fine as you'll only rarely need to sell to rebalance.  Also, that will reduce the pain of having to roll over manually.

I bought a short term T-bill at first to test the waters, and that helped remove the mystery.  You buy them for a discount off face value, which is equal to the amount earned from interest over the term - even though your specified unit of "1" means $1000 face value.  The value gradually appreciates more or less linearly, and reaches face value at the time of maturity.  It's simplicity itself to sell them at any time, if they're in a brokerage account.  On the day of maturity you get an email and the face value is deposited into the sweep account.

Pointedstick wrote: I think I might just sell all the SCHO, buy some T-bills, and then replace them when they mature.

Relating to my recent question on the bond buying tutorial thread, how do you know that buying the bills directly through Fidelity is less expensive than SCHO? Fidelity marks the bonds up a bit to earn a profit, right? Plus there is a tiny bid/ask spread. Compare to .08% ER, and I wonder if buying directly is actually more expensive. Thoughts?

I've just decided to move "deep cash" to Treasury Direct and set everything up to roll-over for 2 years (the max for Bills). ER 0%. Institutional diversity. As safe as you can get.

It's Schwab, actually, and I know because Schwab explains that they charge no mark-up on treasuries. Non-government bonds are typically $1 per bond.

http://www.schwab.com/public/schwab/inv ... s_minimums

did anyone actually sell T-Bills/Bonds at Schwab online and no fee?
I haven't, but did both online chat and email confirming that you can't sell them online yourselves therefore you need to call for that, thus incurring charge of $25 for phone assistance.

edamat wrote: did anyone actually sell T-Bills/Bonds at Schwab online and no fee?
I haven't, but did both online chat and email confirming that you can't sell them online yourselves therefore you need to call for that, thus incurring charge of $25 for phone assistance.

That's disappointing. I hadn't noticed that. 

edamat wrote: did anyone actually sell T-Bills/Bonds at Schwab online and no fee?
I haven't, but did both online chat and email confirming that you can't sell them online yourselves therefore you need to call for that, thus incurring charge of $25 for phone assistance.

That's my understanding as well, unfortunately. My hope is that within a few years, Schwab will join Fidelity and Vanguard in the 21st century by allowing its customers to buy and sell their Treasuries online without having to call up a broker.

Tortoise wrote:

edamat wrote: did anyone actually sell T-Bills/Bonds at Schwab online and no fee?
I haven't, but did both online chat and email confirming that you can't sell them online yourselves therefore you need to call for that, thus incurring charge of $25 for phone assistance.

That's my understanding as well, unfortunately. My hope is that within a few years, Schwab will join Fidelity and Vanguard in the 21st century by allowing its customers to buy and sell their Treasuries online without having to call up a broker.

Given the extremely low ER and the considerable added convenience with minimal added risk, I just use SCHO.

Ad Orientem wrote: Given the extremely low ER and the considerable added convenience with minimal added risk, I just use SCHO.

I guess the good news for people who want to hold T-bills directly in a Schwab retirement account is that they should virtually never have to pay that $25 broker-assisted sale fee. You just buy a new T-bill whenever one matures, and the purchases are free.

The main drawback, as you pointed out, is less convenience since you have to periodically buy the new T-bills manually. I suppose one way to minimize that inconvenience is to own just one T-bill instead of a ladder; that way, it only needs to be repurchased once a year. Most rebalancing events probably wouldn't require selling any portion of the T-bill since rebalancing funds tend to flow into cash rather than out of it (if I remember correctly).

For taxable Schwab accounts, by contrast, I think there would be more of a risk of having to access that cash in a pinch and thus having to pay that $25 fee to sell the T-bill(s).

Tortoise wrote:

edamat wrote: did anyone actually sell T-Bills/Bonds at Schwab online and no fee?
I haven't, but did both online chat and email confirming that you can't sell them online yourselves therefore you need to call for that, thus incurring charge of $25 for phone assistance.

That's my understanding as well, unfortunately. My hope is that within a few years, Schwab will join Fidelity and Vanguard in the 21st century by allowing its customers to buy and sell their Treasuries online without having to call up a broker.

Isn't that sort of like a club making a big deal about "No Cover Charge!", but then telling you that you must pay a fee before you will be allowed to leave?

Interesting development: I sold some T-bonds in my Schwab brokerage a couple of days ago to rebalance. I had to do it over the phone since they don't let you do it online. So I fully expected to be charged the $25 broker-assisted fee described in Schwab's fees & commissions guide, but it didn't show up on the transaction record. The commissions and fees were all listed as $0. The quantity x price + accrued interest was equal to the amount deposited in my sweep account.

However, I did notice the passage below from Schwab's fees & commissions guide:

Schwab reserves the right to act as principal on any fixed income transaction, public offering, or securities transaction. When Schwab acts as agent, a commission is charged on the transaction. When Schwab acts as principal, the markup is included in the bond price.

Source: http://www.schwab.com/public/schwab/inv ... s_minimums

So maybe that means the listed bond price in the transaction record is slightly lower than what Schwab actually sold the bond for, and Schwab pocketed the $25 difference to collect their fee?

Tortoise wrote:I use a Schwab brokerage window in my 401(k), and I have made commission-free Treasury bond purchases of only $1000 on more than one occasion.

I have my IRAs at Schwab, and their glossary states that T-bills are sold in $1K increments (although I have yet to attempt to purchase any myself):

Treasury Bill
A short-term debt security of the U.S. government, also known as a "T-Bill." T-Bills are usually held for a short time period (i.e., three months to one year) and can easily be converted into cash. T-Bills are typically sold at a discount and are exempt from state and local taxes. The money you will make on a T-Bill is the difference between the face value of the T-Bill and what you paid for it. T-Bills are sold in $1000 increments.
https://www.schwab.com/public/schwab-uk ... s/glossary

A quick update relating to my previous post last October:

In late January I received a new "Quarterly Explanation of Fees" form from Schwab that they'd never sent me before. Sure enough, one of the line items on the form was labeled "Fixed Income Markup Fees" with the value of $25. Although the form doesn't specifically say, I'm assuming the markup fee was from when I sold a T-bond (via phone, through a broker--the only way you can currently do it at Schwab) last October.

This was just a confirmation for me that, yes, even though the $25 bond sale commission doesn't show up anywhere in the detailed transaction log, it is indeed folded into the bond price. Now I know.

I think it's a little bit sketchy that Schwab's transaction records don't just list the $25 bond sale commission next to the bond sale the way they list ETF trade commissions next to the ETF trades. Yet they do mention the commission in my quarterly explanation of fees. Weird.

Just as a general FYI in case this was new to anyone beside me, Fidelity will allow you to set up a direct purchase autoroll feature for treasuries with up to a five year maturity via telephone - no on-line account required.  But they will require an e-mail address so that renewal notices can be sent electronically.