Gyroscopic Investing

If you're using TBills or a TMMF that is earning near 0%, does it make sense to keep them in taxable accounts now?

This could either be with new contributions that happen to go into cash, or with rebalancing moves where you are selling another asset that is held in taxable, or with tax-loss harvesting.

You wouldn't want to sell an asset held in taxable, to realize a capital gain, just to re-position cash. But if you have the ability to put cash in taxable, I'd say do it, and free up your tax-advantaged space for any of the other 3 assets.

Then when interest rates rise, you can "sell" the cash, to buy another asset, and then within your tax-sheltered account, sell that asset and buy cash. You won't realize a capital gain in taxable since your cash had a $1 NAV. You may realize a capital gain in the tax-shelter on the asset you are selling, but it's a tax-shelter so there's no tax event.

Seems like a no brainer move to me. Any negative consequences?

TripleB wrote: If you're using TBills or a TMMF that is earning near 0%, does it make sense to keep them in taxable accounts now?

For now, it does.  The question is how you move it all if the interest rate goes up.

Adam1226 wrote:

TripleB wrote: If you're using TBills or a TMMF that is earning near 0%, does it make sense to keep them in taxable accounts now?

For now, it does.  The question is how you move it all if the interest rate goes up.

Suppose you have a $90k portfolio. $50k is in tax-sheltered accounts (401k/IRA), and $40k is in taxable.

You get another $10k to invest in taxable. Your lowest asset is stocks.

You put the $10k in cash in taxable. Then within your tax-shelter (which is holding your previous cash asset) transfer $10k of cash into $10k of stocks.

Thus, you contributed to your lowest asset with the new money, but you "placed" it within your IRA because now you have $10k more stocks within your IRA than you had before (albeit $10k less cash in the IRA than before). You are cash neutral because the $10k loss of cash from the IRA is balanced by the $10k gain of cash in the taxable account.

Then lets say in 2 years interest rates rise to 2%. You "sell" the cash, pay $0 in taxes since there's no capital gain, and buy stocks with the money. Then within your IRA, you sell stocks, and buy the same amount of cash. Thus shifting the stocks into taxable accounts, with no tax hit.

Most of the time stocks pay a lower dividend than the yield on cash. Thus, it could make some sense to put cash in an IRA before stocks.

Right now, we have the opposite. I don't see any point in putting cash in an IRA before stocks.

melveyr wrote: Most of the time stocks pay a lower dividend than the yield on cash. Thus, it could make some sense to put cash in an IRA before stocks.

Right now, we have the opposite. I don't see any point in putting cash in an IRA before stocks.

The other reason we put stocks in taxable over cash is not only the dividend is usually lower than the yield on cash, but the dividend is taxed preferentially. So even if the yield on stocks = yield on cash, it's better to have stocks in taxable.

I just got a letter informing me that a bond which I was supposed to redeem in 2014 is being bought by another company. The cash which I will  receive for it next month is just enough to fund my 401(k) and Roth IRA this year. Of course I'm going to fund those accounts to the max, even if it leaves me with very little cash in taxable. Am I making a mistake?

My taxable account is almost all stocks anyway, a condition of learning about the PP quite late. ("Late": relative to having money to invest. I'm a Boglehead).

My retirement accounts are almost all in long bonds, with only $1000 in cash.

dualstow wrote: I just got a letter informing me that a bond which I was supposed to redeem in 2014 is being bought by another company. The cash which I will  receive for it next month is just enough to fund my 401(k) and Roth IRA this year. Of course I'm going to fund those accounts to the max, even if it leaves me with very little cash in taxable. Am I making a mistake?

My taxable account is almost all stocks anyway, a condition of learning about the PP quite late. ("Late": relative to having money to invest. I'm a Boglehead).

My retirement accounts are almost all in long bonds, with only $1000 in cash.

I would only put cash in taxable after maxing out 401k/IRA/HSA/iBonds and any other tax-sheltered vehicles you might have. like TSP or a 403B.