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Best banks for the lazy
Old 05-02-2010, 11:30 AM   #1
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Best banks for the lazy

Hunting another place to stash some cash in - we've CDs in Penfed at a pretty happy rate but need a spot for some of the cash we loan out and their savings rate is modest. Currently have ready cash piling up in a couple Costco CapOne accounts but the 1.29% rate, while appreciated, is not inspiring. Also getting to the point that we could lose if CapOne went under.

Know myself too well to think I would do 12 debit card transactions, three auto deposits, send in a Kix cereal boxtop, and wear plaid on Fridays to get 4% on up to $25k. Too lazy and failing to meet the requirements would just piss me off.

Guess I'm looking for that happy spot where security and return meet. Anyone have anecdotal recommendations? Any stock market type instruments that offer decent return for low risk? Corporate bonds? Length of time they must be held to realize dividends?

Been looking here:
http://ratebrain.com/savings-rates
and here:
Bank Deals - Best Rates and Deals
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Old 05-02-2010, 11:44 AM   #2
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If you want to move into bonds, you have to ask yourself why you weren't using bonds previously. Bonds do have more risk than CDs.

Have you checked out I-bonds? They are riskless, but do come with some redemption caveats.
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Old 05-02-2010, 11:59 AM   #3
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For low risk, low vol applications I have been buying BKT lately. It is a CEF that trades at north of a 10% discount to NAV and owns nothing but Agency MBS. It has a reasonable (for CEFs downright low) expense ratio and no leverage. It flops around by a few pennies here and there, but is pretty stable. This is NOT a CD or savings account equivalent, but the yield is decent for today, there is no credit risk to speak of, and the fat discount to NAV means that some day this could offer a capital gain. But of course it has interest rate risk and you could lose money, so do your due diligence and only buy if you are comfy with what appebe a modicum of risk.
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Old 05-02-2010, 12:11 PM   #4
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Quote:
Originally Posted by LOL! View Post
If you want to move into bonds, you have to ask yourself why you weren't using bonds previously. Bonds do have more risk than CDs.

Have you checked out I-bonds? They are riskless, but do come with some redemption caveats.
Haven't used bonds because other simpler things have been available in the past for similar or better return. Only been in the last 5-6 years that we weren't dumping every dollar back into the rentals. See also lazy caveat. Looks like I-bonds don't allow us to buy a large enough amount ($10k/year each) and have a one year minimum hold time. Nice interest rate though.
Individual - I Savings Bonds
About half our loan investment money needs to be available within maybe a month's time. Have kind of a soft ladder in mind with the cash - can see where I-bonds could be useful.

Thanks -this is good - make me look at other possibilities!
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Old 05-02-2010, 12:18 PM   #5
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For low risk, low vol applications I have been buying BKT lately. It is a CEF that trades at north of a 10% discount to NAV and owns nothing but Agency MBS. It has a reasonable (for CEFs downright low) expense ratio and no leverage. It flops around by a few pennies here and there, but is pretty stable. This is NOT a CD or savings account equivalent, but the yield is decent for today, there is no credit risk to speak of, and the fat discount to NAV means that some day this could offer a capital gain. But of course it has interest rate risk and you could lose money, so do your due diligence and only buy if you are comfy with what appebe a modicum of risk.
Ok Brew - you gotta be messing with me. Now I have to look up BKT, NAV, M-O-U-S-E.

Ok, Net Asset Value, that I get. The others, not so much - really am a dummy on this stock stuff

Thanks, will check.
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Old 05-02-2010, 12:21 PM   #6
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CEF = closed end fund

Basic profile here: CEFConnect - Brought to you by Nuveen Closed-End Funds
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Old 05-02-2010, 12:29 PM   #7
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OK, when I look at the holdings in BKT, I do not see "nothing but agency MBS". I see that it has lent out 80% cash (?), some JPMorganChase mortgage paper, and 28% in unrated stuff.

Why would I use BKT instead of something like Vanguard GNMA fund (VFIIX)?
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Old 05-02-2010, 12:43 PM   #8
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https://www2.blackrock.com/webcore/l...ND&Source=WSOD

Most recent annual report.

BlackRock

Fund sponsor website.
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Old 05-02-2010, 12:59 PM   #9
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OK, when I look at the holdings in BKT, I do not see "nothing but agency MBS". I see that it has lent out 80% cash (?), some JPMorganChase mortgage paper, and 28% in unrated stuff.

Why would I use BKT instead of something like Vanguard GNMA fund (VFIIX)?

OK, there is a smidge of non-agency MBS and a little ABS and CMBS, but the vast majority of holdings are agency MBS, agencies, treasuries, etc. The cash and whatnot is part of the general management of bonds funs, especially agency MBS. Basically they participate in the TBA market (to be announced) that the agencies run just like every other bond fund on the planet and they appear to do securities lending (I lend you a bond and keep the coupons/return, you collateralize the loan with 102% of the market value of the security and I keep the interest on the cash collateral and sometimes charge you a fee on top of it) just like every other bond fund on the planet. Amusingly, I found at least one piece of CmBS in the portfolio in the annual report that they apparently got TALF funding to leverage their returns on a non-recourse basis.

Why would you own this instead of VFIIX? Two reasons: 1, it pays about 1% higher yield than the VG fund, 2, it trades at close to a 12% discount to NAV so it is quite possible that at some point the disount narrows offeringthe possibility of a capital gain. Its also a lot like watching paint dry with a reasonable yield, which means I am happy with it as a parking place/bond fund even if the discount never narrows. YMMV.
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Old 05-02-2010, 01:25 PM   #10
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I see why it trades at a discount to NAV. It has a lot of alt-A bonds, CDOs and other junk. If I read the holdings correctly, it has a bunch of crap that my 401(k) MorganStanly US Government securities fund had in it: stuff like CountryWide paper. This BKT could probably drop 10% more easily than it could go up 10%.

That discount to NAV means nothing. Who decides what the NAV is? Well, Black Rock does. They can keep bonds on the books at some bogus value. All of us who have read about the subprime mortgage dealings know that this is very suspect. This looks like something straight out of Michael Lewis's The Big Short: decent bonds (in this case US government backed obligations) packaged with crap.

It is true it pays a higher yield, but that comes with higher risk. There is no free lunch, especially in the bond market.
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Old 05-02-2010, 01:56 PM   #11
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Meh, I deal with/look at this stuff all day and the bulk of the non-agency stuff they own is pretty plain vanilla/money good, and there isn't that much of it. As for the NAV, this stuff is quoted and trades. It isn't that hard to price this stuff, although you couldn't say that for about 6 to 9 months in the crisis. I am comfy with their portfolio, in any case.

But, as I said, do yout own due diligence.
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