Gyroscopic Investing

I started the PP a little over 2 years ago and am very happy with it. Unfortunately, at the time, the Vanguard Treasury MMF was "temporarily" closed to new investments due to the drop in yield to the point where it couldn't cover the fund's expenses. Initially I had a lot of my cash in VG's Prime MMF, and later moved it into the VG Short Term Treasury Fund, as CraigR suggests he does.

I viewed this as a temporary measure until the Treasury MMF re-opened and not a market timing measure at all. In fact, I was sure rates on bonds would rise and I would lose some principal since I artificially extended the duration of my cash position longer than Harry Brown intended. However, this was a modest risk compared to default of the Prime MMF, so I assumed it.

Now that interest rates have dropped further, I have re-assessed my risk cost for this maneuver and have decided I would like to reduce the duration of my cash position to the intended range. Since the T-MMF is still closed, I am considering doing this with my own ladder. Most of the threads in this subforum describe making ladders from 0 to 3 years. That's far too long for me.

I'm seriously considering just doing a 30-day rollover, where 100% of my cash position is in 30-day t-bills, that I roll over the following month. I don't see a need to rebalance my PP more than once per month, and if I did, I can liquidate the t-bills as necessary mid-month.

My problem with this method is not the time involved in doing it, but the specificity of time involved. I might be busy working on the day they are set to expire, or it might be a weekend. Then the money would fall into my VG Prime MMF and essentially destroy my purpose for this strategy.

However, if I create a ladder from 0 to 3 months, with 1/3 in each of the one-month intervals, then at most 1/3 of my money would temporarily fall into the Prime MMF, and at most it would only be there for a few days until I had time to make bids on new issues. Thus, maybe 5% of the year, 1/3 of my cash portion would be at risk. That seems reasonable until the VG T-MMF reopens.

An additional reason for wanting to do this, is to avoid the expense ratio of the MMF. If all I have to do is log into my brokerage account for a few minutes each month, which I am going to do anyway to verify my assets have not been compromised, then I might as well create my own ladder and forgo paying expenses.

I currently use VG as my broker, and I believe they are considered subpar as compared to other options. However, I have Voyager status with VG so they don't charge me a brokerage fee, and I've had my money with them since I started my IRAs about 10 years ago and would prefer to keep them unless other brokerage are immensely better suited. It would be incredible if I could just set it on auto pilot and have the money from the 30 day t-bills automatically enter new 30 day t-bills upon expiration. I think you can do that with Treasury Direct, however I have 100% of my investments current in tax-sheltered vehicles so TD is not an option for me.

I'm looking for thoughts on both:

A) Is it reasonable to make my own 30-day revolving "ladder" or a 0-to-3 months ladder
B) What's the best way to do this given my 100% tax-sheltered status with a strong preference on keeping the money in VG for simplicity. If I have to transfer money to an IRA at another brokerage so that I can save 2 minutes each month on placing bids, then the paperwork/phone calls involved in the transfer would make it a net loss of my time to do so and it would be better to keep it at VG.

You can program Treasury Direct to automatically purchase any Treasury security on a rotating schedule, for free. A perpetual ladder system, if you will.

http://www.mymoneyblog.com/how-to-build ... guide.html

Unfortuneately all of my money is tax sheltered and TD doesnt  offer IRA accounts.

Right, sorry. Missed that part the first time I read it. Not sure there's an easy way to accomplish what you're trying to do. I'm pretty sure Harry Browne simply recommended buying 1 year Treasury bills at the beginning of each year and repurchasing new ones each year when they expire.

See the very last (red) line on this page: http://harrybrowne.org/PermanentPortfolioResults.htm

Cash results are for Treasury bills, assuming that a 1-year bill was bought at the start of each year

So you don't want to use SHV (0.10%) or BIL (0.13%) because of the expense ratio?

This is from Craig's FAQ on cash.

Harry Browne recommended using the Treasury Money Market Fund for cash. I personally like using Short Term Treasuries in combination with a Treasury Money Market Fund which provides nearly identical risks but slightly better returns on your cash.

jmourik wrote: So you don't want to use SHV (0.10%) or BIL (0.13%) because of the expense ratio?

I don't want to buy SHV or BIL because of the trading fees. All of my "actionable" money is at Vanguard, and I would have to pay a transaction fee to buy and sell non-VG ETFs. I can, however, buy T-Bills at auction for free.

Since cash is essentially my "go to" asset where I invest ALL new money, it would be ridiculously expensive to buy $1000 worth of SHV every month on a $10 trade or whatever they are charging now at VG.

Aren't trading fees $2 for Voyager status? You could just trade once every three months or so. But yes, kind of a hassle if you also need to take out money for rebalancing, though the three (or so) months delay could act as the buffer.

jmourik wrote: Aren't trading fees $2 for Voyager status? You could just trade once every three months or so. But yes, kind of a hassle if you also need to take out money for rebalancing, though the three (or so) months delay could act as the buffer.

What do I do with the money for the 3 month time period? Sit in Prime MMF? Or other?

On the Vanguard side of our accounts, I am using VFISX (Vanguard Short-Term Treasury Fund). Not ideal, but best I could do.

Gumby wrote:I'm pretty sure Harry Browne simply recommended buying 1 year Treasury bills at the beginning of each year and repurchasing new ones each year when they expire.

Given the S&P downgrade, don't you think "mature" might be a better word than "expire"?