How do you invest the Cash portion?

Discussion of the Cash portion of the Permanent Portfolio

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ochotona
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Re: How do you invest the Cash portion?

Post by ochotona » Tue Dec 03, 2019 7:03 pm

I-Bonds cannot break the zero bound. This is big f deal. Retail depositors in Europe are now being charged to keep their money in the bank.
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Re: How do you invest the Cash portion?

Post by vnatale » Tue Dec 03, 2019 8:11 pm

pugchief wrote:
Tue Dec 03, 2019 4:49 pm
sophie wrote:
Tue Dec 03, 2019 10:17 am
pugchief wrote:
Mon Dec 02, 2019 7:59 am
boglerdude wrote:
Sun Dec 01, 2019 8:58 pm
> At today's rates on I bonds, there are just more desirable ways to invest cash

Which are? ibonds are risk free 2.22%
There are 5 year CDs available now paying more than that.
Can you share? The highest 5 year CD that I can find is paying 2.15%. This is effectively much worse than I bonds for me, as they are subject to state and local taxes. I bonds are not PLUS they're tax deferred. This is another substantial benefit for me...potentially another 10% or greater tax savings on top of the 11% with state/local.

Also, you pay the same 3 month interest penalty (and possibly more) with a 5 year CD if you break it early. So I'm not quite following your logic here? Also, all CD agreements have a little gotcha buried in them to the effect that the bank can deny or delay your request to cash in a CD before maturity. Treasury direct has no such limitations on selling an I bond.

The one advantage of a CD is that if inflation rates drop, I bond interest will drop accordingly but the CD will remain constant. Of course it works the other way too, if interest rates rise. And of course you can break the CD in year 1 if you choose to. But if you're buying a 5 year CD (or an I bond) you hopefully have at least a year's worth of expenses socked away in a more liquid form, such as a savings account or money market fund.
For instance, here is a 55 month at 2.6% or 84 month at 3.05% https://www.andrewsfcu.org/Learn/Resour ... cate-Rates. And I bonds are illiquid for 1 year, where as a CD is not. Also not sure the govt FDIC would allow default any differently that the US govt with treasuries.
Isn't the FDIC funded by individual bank contributions? In a true panic the FDIC could run out with no guarantees the government would step in to back up private banks. Maybe they would. But it's a lot different than the safety of treasuries. Plus, even if you were able to get your FDIC guarantee there could be a long delay from when you could actually get at your funds.

Vinny
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sophie
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Re: How do you invest the Cash portion?

Post by sophie » Tue Dec 03, 2019 9:17 pm

Those do indeed look like nice CD rates - for money you are willing to lock up for 5 years, due to that excessive penalty for breaking the CD early.

However, most of us cannot get them. You have to join that credit union first, and most of us can't do that:
ELIGIBILITY REQUIREMENTS
You are eligible to join us if you are at least 18 years of age1, and one of the following applies to you:

You are employed by or a member of one of our Employer Groups.
You live, work, attend school, or worship in Washington, D.C.
You are or wish to be a member of the American Consumer Council.
You are an immediate family or household member2 of an existing Andrews Federal member.
You are U.S. Active Duty or U.S. Retired Military Personnel (or their spouses, dependents or dependent survivors) assigned to, or eligible to and are currently receiving benefits or services on a regular basis from Joint Base Andrews or Joint Base McGuire-Dix-Lakehurst.
Civilian personnel of U.S. Military units (or their dependents or dependent survivors) who work at or are assigned to Joint Base Andrews or Joint Base McGuire-Dix-Lakehurst.
Active Duty U.S. Military or Civilian personnel (or their dependents or dependent survivors) of the Department of Defense who have a valid Uniformed Services Identification and Privilege Card and who are authorized logistical support in accordance with the appropriate host nation Status of Forces Agreement, and who have a work or residential address within Andrews' assigned geographical territory, consisting of areas in: the Netherlands, Belgium, and northern and central Germany.
You qualify based on your affiliation with specific Military Installations.
My only option would be to join the American Consumer Council. And then I'd have to keep money in the credit union at near zero interest, for no other reason since I can't use their services in any other respect.

Easier just to buy the I bonds :-).
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Re: How do you invest the Cash portion?

Post by vnatale » Wed Dec 04, 2019 7:18 pm

I started this topic on July 4th and it is STILL going strong!

Tonight I came back to it to reread what I initially wrote plus what everyone else subsequently wrote. Tonight I also completed reading Craig and Tex's book for the third time this year. The goal is to FINALLY come up with the plan I will execute to then be completely in the Permanent Portfolio. I still want to eventually get to Level 4 (per the book) but I do want to finally get the Permanent Portfolio started. I also recognize that I can gradually move each of the four investment components up levels from where I will be originally starting them so that each does end up at Level 4.

Therefore, along with that, I am going to first start off my cash investment 100% in Vanguard Treasury Money Market Fund (VUSXX). I at first panicked because it was NOT listed under Money market funds in Vanguard's Mutual Fund list. Had it somehow closed??!! But then I found it doing a search on its Ticker.

It currently has a Expense ratio of 0.09%. Quite low. With a 7 day SEC yield of 1.65% it's really earning 1.74%.

Assuming I later buy Treasury Bills in its place I could get quite close to the 1.74% rate, either slightly higher or slightly lower?

And, the time break-even is taking that 0.09% Expense ratio which turns into $9 per year for every $10,000 invested / $90 per year for every $100,000 invested and comparing that total Expense ratio $ amount I'd be avoiding by doing it myself to how much time a year it'd cost for me to do it myself (i.e., buying the Treasury Bills directly).

It seems that compared to the last time I looked the Portfolio composition has deteriorated with only 90.8% being in U.S. Treasury Bills with the remaining 9.2% being in U.S. Govt. Obligations? Seemed last time I looked the ratio was closer to 99% / 1%? Or, maybe I am mis-remembering? But this is a qualitative difference that pushes me more to doing it myself.

I have questions regarding buying the Treasury Bills at Vanguard brokerage but I'll save that for the next Reply.

Vinny
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Re: How do you invest the Cash portion?

Post by vnatale » Wed Dec 04, 2019 7:29 pm

Many months ago I talked to Vanguard brokerage regarding buying Treasury bills through them.

Since they are notes it's be great if any of you experienced with buying them through Vanguard can correct anything I'm not correctly interpreting from my notes.

1) No fees to buy them.

2) Maximum term - 12 months

3) For 1 month, 2 month, 3 month, 6 months Treasury Bills there are weekly auctions whereby you get to bid 3 days in advance

4) For 1 year Treasury Bills there are monthly auctions whereby you get to bid 4 days in advance

5) If buying on the secondary market you can buy any time from 8 AM to 5 PM, Monday to Friday.

In my entire life my own bond purchases have been via just two bond funds, both of which I still have. I have never purchased an individual bond so this is all new to me.

In addition to correcting anything I have mis-stated above, I'd love to hear as many specifics as possible regarding your Treasury Bill buying with Vanguard.

Since I will be going "pure" Permanent Portfolio I'm not interested in anything but Treasury Bills in the form of bond purchases to constitute the "Cash" portion of the Permanent Portfolio. Nothing longer than a year. No non-Treasury Bills, any other money market funds, or CDs. Given my overall situation, I'm placing a HIGH premium on safety with NO need to try to get small extra %'s greater than the Treasury Bill rates.

Vinny
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Re: How do you invest the Cash portion?

Post by vnatale » Wed Dec 04, 2019 8:03 pm

vnatale wrote:
Wed Dec 04, 2019 7:18 pm
I started this topic on July 4th and it is STILL going strong!

Tonight I came back to it to reread what I initially wrote plus what everyone else subsequently wrote. Tonight I also completed reading Craig and Tex's book for the third time this year. The goal is to FINALLY come up with the plan I will execute to then be completely in the Permanent Portfolio. I still want to eventually get to Level 4 (per the book) but I do want to finally get the Permanent Portfolio started. I also recognize that I can gradually move each of the four investment components up levels from where I will be originally starting them so that each does end up at Level 4.

Therefore, along with that, I am going to first start off my cash investment 100% in Vanguard Treasury Money Market Fund (VUSXX). I at first panicked because it was NOT listed under Money market funds in Vanguard's Mutual Fund list. Had it somehow closed??!! But then I found it doing a search on its Ticker.

It currently has a Expense ratio of 0.09%. Quite low. With a 7 day SEC yield of 1.65% it's really earning 1.74%.

Assuming I later buy Treasury Bills in its place I could get quite close to the 1.74% rate, either slightly higher or slightly lower?

And, the time break-even is taking that 0.09% Expense ratio which turns into $9 per year for every $10,000 invested / $90 per year for every $100,000 invested and comparing that total Expense ratio $ amount I'd be avoiding by doing it myself to how much time a year it'd cost for me to do it myself (i.e., buying the Treasury Bills directly).

It seems that compared to the last time I looked the Portfolio composition has deteriorated with only 90.8% being in U.S. Treasury Bills with the remaining 9.2% being in U.S. Govt. Obligations? Seemed last time I looked the ratio was closer to 99% / 1%? Or, maybe I am mis-remembering? But this is a qualitative difference that pushes me more to doing it myself.

I have questions regarding buying the Treasury Bills at Vanguard brokerage but I'll save that for the next Reply.

Vinny
Looks like I had NOT mis-remembered. Going back to what I originally wrote on July 4, 2019:

"Going to Vanguard I can see that the current composition of the Vanguard Treasury Money Market Fund (VUSXX) is:

U.S. Treasury Bills 100%"

At Vanguard I see this regarding the fund:

"Vanguard Treasury Money Market Fund seeks to provide current income, while maintaining a stable $1 NAV and a very short average maturity. The fund invests 100% of its assets in securities backed by the full faith and credit of the U.S. government. The portfolio managers seek to add value primarily by emphasizing specific issues that appear attractively priced based on historical yield-spread relationships. The average maturity typically ranges from 30–60 days, and the fund maintains a dollar-weighted average maturity of 60 days or less, and a dollar-weighted average life of 120 days or less."

I guess the difference from today and July 4, 2019 is that as of today they sought "to add value primarily by emphasizing specific issues that appear attractively priced based on historical yield-spread relationships"?

I am going to attempt to query the current Portfolio manager regarding this. Anyone ever had any communications with a Vanguard Portfolio manager?

Vinny
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Re: How do you invest the Cash portion?

Post by vnatale » Wed Dec 04, 2019 8:15 pm

dualstow wrote:
Sat Jul 06, 2019 5:36 pm
ochotona wrote:
Sat Jul 06, 2019 9:18 am
I'm disappointed Ally's savings rate went down to 2.10%,
TD sent me an offer of a $500 bonus if I deposit 20K. So 2.5% After that, the savings rate is 0.10% I looked up Ally’s rate because I have checking with them and thought, ooh, 2.10%, not bad. (There are other offerings from TD that are higher, but without the bonus, I think).

Not really worth opening and closing accounts.
I did start a separate discussion regarding this.

Yes, one would definitely have to open the account to qualify. In closing an account are you referring to closing an account elsewhere to get the money there? Or, ultimately closing this account.

The issue of ethics was raised by a few of just engaging a credit card bonus and then leaving as soon as you satisfied the requirements. That's fine if there was some give and take on the other end but does anyone dispute the following? The credit card company offers you $200 if you charge $1,500 during the first 90 days of the life of the card. Do you think you get your $200 if you spend $1,499.99? Or, Take 91 days? Of course not! They are quite black and white with their offers. Therefore, I see no ethical problems with being black and white with their offers. Furthermore, that 90 days? It starts from when they approve your card. NOT when you actually receive your card, which can be 14-21 days later. That, of course, does not give you the full 90 days. I brought this up with the representative of one of the cards. You can all guess what answer I got.

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Re: How do you invest the Cash portion?

Post by vnatale » Wed Dec 04, 2019 8:19 pm

jacksonM wrote:
Sun Jul 07, 2019 6:57 pm
T bills for me too. Some of it is in various money market accounts at Fidelity and Vanguard for convenience sake but basically if I have a big bunch of cash it goes into T-Bills.

As for why I do this, it's because that was what HB suggested in his book and also the authors of the newer book by the folks who originally started this forum. They seemed to have spent more time thinking about these kinds of things than me and showed facts and figures for why it worked in the overall scheme of things so I didn't see any reason to delve any further to come up with my own plans.

Especially true nowadays when the best you can hope for with cash beyond what they recommended is is a minuscule improvement that doesn't really justify the risk of doing something else.
Thank you for quite well stating an affirmation for what I think I will be choosing to do.

Vinny
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Re: How do you invest the Cash portion?

Post by vnatale » Wed Dec 04, 2019 8:25 pm

Smith1776 wrote:
Fri Sep 06, 2019 3:23 pm
A bit of water cooler talk here.

Which would you guys consider to be safer for the cash portion of the PP, assuming you could only pick one?

1) A ladder of 1 - 5 year federal government treasuries

2) A fund with 0 - 90 day commercial paper obligations?
You did use the word "safer". Therefore I cannot think it'd be anything but #1 for safety of the nominal amount of your principal.

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Re: How do you invest the Cash portion?

Post by vnatale » Wed Dec 04, 2019 8:30 pm

dualstow wrote:
Wed Sep 11, 2019 2:37 pm
Just the bulk of holdings. I don’t keep a fixed percent in one or the other. When the auction for 2-yr notes came out earlier this year I jumped on it because the potential rate was 2.75%*.
I like the treasury money market because I can sell notes to the sweep account and then the the next day purchase stocks, gold, bonds or cash. I tend to hold all bills and notes to maturity, although it would be easy enough to sell the if I were in a jam.

*9128285B2 2-year notes. Know that the advertised rate for an auction issue is merely a guideline. You don’t know what you’ve got until the auction is done. That’s why — as I said in the response to your pm — many people prefer the secondary market. I think we have a stickied guideline to buying treasuries, btw.
This is ONLY the 4th time I've read this. But the FIRST time I have noticed your last sentence. Is it referring to something that exists in this forum?

If so, where do I find it?

Thanks

Vinny
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Re: How do you invest the Cash portion?

Post by vnatale » Wed Dec 04, 2019 8:33 pm

sophie wrote:
Sun Oct 27, 2019 11:07 am
ochotona wrote:
Fri Oct 25, 2019 7:19 pm
Does anyone use SHV for cash?
I don't use ETFs for cash, but it's mainly because they are a PITA to trade. Plus I've experienced a bit of float with share values. Much prefer money market funds pegged at $1/share and straight up T bills.

Also, VUSXX (Vanguard treasury-only MM) blows SHV away on the expense ratio (0.09% vs 0.15%). I wish FDLXX (Fidelity's treasury MM) would come down from its eye-popping 0.42%.
Does FDLXX usually have a yield about 0.33% less than VUSXX's rate?

Vinny
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Re: How do you invest the Cash portion?

Post by vnatale » Wed Dec 04, 2019 8:40 pm

ochotona wrote:
Tue Nov 05, 2019 12:40 pm
vnatale wrote:
Tue Nov 05, 2019 12:26 pm

Does that whole process now seem like the Dark Ages compared to now? I also used to buy tons of stamps back and write a lot of checks. Now it's only a handful of stamps used ALL year and not that many checks written.

Vinny
Yeah... except just remember... common everyday email is NOT ENCRYPTED. If you want something to be really pretty private, send it by US Mail... or encrypt it.
That U.S. Mail is not ALWAYS "pretty private". Over the years I've been given enough of my neighbors' mail (which, of course, I return) that each time it happens I wonder if some neighbor originally received one of many Vanguard statements that arrive each month.

Vinny
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