ETF Newbie Question

[anonamouse]

I've finally finished the book and should have paperwork finalized on brokerage account today. I have decided on a 1 broker 4 ETF version of...

VTI, SHY, TLT, IAU

I know this isn't optimal risk wise but it's the best fit for where I'm at right now in this game.

I have a rather sizable amount to implement this with, here's the terrifying part, I know zero about the mechanics of this.

Do I just do a market order and not worry about whatever amounts are lost to bid/ask process?

Anyone with experience that could please offer advice would be much appreciated.

Thanks!

[ns3]

I've finally finished the book and should have paperwork finalized on brokerage account today. I have decided on a 1 broker 4 ETF version of...

VTI, SHY, TLT, IAU

I know this isn't optimal risk wise but it's the best fit for where I'm at right now in this game.

I have a rather sizable amount to implement this with, here's the terrifying part, I know zero about the mechanics of this.

Do I just do a market order and not worry about whatever amounts are lost to bid/ask process?

Anyone with experience that could please offer advice would be much appreciated.

Thanks!

You're doing exactly what I did  with the same funds when I went from PRPFX to DIYHB. Buying my own treasuries and physical gold followed shortly thereafter.

As for purchasing the ETF's, I've never done anything but place market orders with Fidelity and usually the trade happens almost immediately if the market is open (and you should only do it if the market is open). If there is anything more complicated to look at one of the more experienced investors here will have to explain it to you.

[WildAboutHarry]

If you are worried about a flash crash type of scenario, place a limit order.  Or place a series of trades over a number of days.

These are all pretty liquid ETFs, though, so a market order during the trading day as ns3 suggests is probably fine.

[goodasgold]

I apologize if this mantra is becoming a tad repetitive, but I believe I-Bonds are far superior to SHY in all but the smallest of portfolios.

I-Bonds cannot be cashed in for one year after purchase, but after that you can do anything you want with them as they accumulate, tax-deferred and indexed to inflation, for 30 beautiful years.

In contrast,  persistent inflation can pretty much wipe out the value of SHY.

People complain that purchases of I-Bonds are limited, which is true, but there are ways of getting around the limit of $10K per year per Social Security Number. Over a period of years a large portion of your cash can be converted to I-Bonds, which now make up about 90% of my cash component. This process was aided a lot by the fact that I bought a big chunk of them years ago (with a guaranteed base rate of 1.2% above inflation), but the principle still applies re expanding I-Bond holdings over time.

[MachineGhost]

In contrast,  persistent inflation can pretty much wipe out the value of SHY.

You feel comfortable holding more than 50% of the cash allocation as I-Bonds?

What evidence are you seeing that inflation "wipes out the value" of 1-3 year maturity Treasuries?

[anonamouse]

ns3 & WildAboutHarry thank you both for the help! I will place when market is open and will check out limit option. TDA gave me a bunch of InvestTools swag like virtual cash to play with, so maybe it would be prudent to utilize that for a trial run. I know there isn't really a time crunch, but it sure seems that way when you are ready to go.

goodasgold thanks for the "tips" on I-Bonds also, I will look into these later down the road, first I have to crawl.

[WildAboutHarry]

[quote=goodasgold]People complain that purchases of I-Bonds are limited, which is true, but there are ways of getting around the limit of $10K per year per Social Security Number. Over a period of years a large portion of your cash can be converted to I-Bonds, which now make up about 90% of my cash component. This process was aided a lot by the fact that I bought a big chunk of them years ago (with a guaranteed base rate of 1.2% above inflation), but the principle still applies re expanding I-Bond holdings over time.[/quote]

I like I-Bonds.  I don't like TreasuryDirect.  I like real-return instruments.  I don't like limited purchase amounts.  I like positive real rates.  I don't like near-zero real rates.

Imagine that stocks (or gold, or long bonds) go on a tear.  Even with all the I-Bond tricks (your account, spouse's account, trust, tax-refund, etc.) you have limited rebalancing capacity.

Imagine the reverse.  Stocks (or gold, or long bonds) go in the crapper.  You sell some of your I-Bonds to rebalance and forever lose the ability to replace those in kind.

Under normal circumstances, short-term treasury bonds have pretty good inflation protection.  These are not normal circumstances.

I think I-Bonds are a great place to park what has been referred to here as "deep cash", but only for a fraction of the cash allocation.

[HB Reader]

People complain that purchases of I-Bonds are limited, which is true, but there are ways of getting around the limit of $10K per year per Social Security Number. Over a period of years a large portion of your cash can be converted to I-Bonds, which now make up about 90% of my cash component. This process was aided a lot by the fact that I bought a big chunk of them years ago (with a guaranteed base rate of 1.2% above inflation), but the principle still applies re expanding I-Bond holdings over time.

I like I-Bonds.  I don't like TreasuryDirect.  I like real-return instruments.  I don't like limited purchase amounts.  I like positive real rates.  I don't like near-zero real rates.

Imagine that stocks (or gold, or long bonds) go on a tear.  Even with all the I-Bond tricks (your account, spouse's account, trust, tax-refund, etc.) you have limited rebalancing capacity.

Imagine the reverse.  Stocks (or gold, or long bonds) go in the crapper.  You sell some of your I-Bonds to rebalance and forever lose the ability to replace those in kind.

Under normal circumstances, short-term treasury bonds have pretty good inflation protection.  These are not normal circumstances.

I think I-Bonds are a great place to park what has been referred to here as "deep cash", but only for a fraction of the cash allocation.

I definitely agree about I-Bonds.  I like them, but I wouldn't recommend using them for more than about a third of your cash allocation (i.e., "deep cash"), at most.

I have a fair amount in I-Bonds I bought from 1999-2001 (@ 3.0% to 3.6% + inflation).  In the event I had to liquidate them because gold, stocks or bonds really tanked for a year or two, it is very unlikely I would be able to eventually replace them anywhere close to those terms AND I would face a major tax hit since the ENTIRE interest amount would be taxed at my marginal rate for that year and some have appreciated well over 100%.

Generally speaking, cash in the PP should be a very safe and stable instrument you can liquidate easily and quickly without suffering a significant loss or major tax hit thereby.  T-Bills (or perhaps laddered slightly longer term T-Notes) probably meet this test best, but I think ETFs like SHV and SHY come fairly close and may be the best practical alternative for many people.

Even during the worst inflation and high interest rate periods from 1979 to 1982, rates on T-Bills and short term T-Notes pretty much kept up with the CPI, although the annual interest earnings each year were taxable if you held them outside of retirement accounts.