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Re: Best place to park cash for 1-?? months
Old 12-30-2003, 09:11 AM   #41
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Re: Best place to park cash for 1-?? months

Ok, that sounds like its agreed that the short term bond fund is a good short term parking space for cash with higher returns and nominally more risk than a money market fund. [monte burns] Exxxxcellent [/monte burns]

How about for a little bit longer? The last few days I've been looking longingly at vanguards Wellesley Income fund (vwinx).

Roughly a 9.4% 10 year total return, almost 11% over the life of the fund (1970). In the last 10 years, 3 down years of 1%, 1% and 4.5%. About 2/3 bonds and 1/3 value stocks paying high dividends.

Over the last 10 years, the dividend/gains throwoff from this given a 500k investment has been about $29,600 per year, with that figure only varying a few thousand from best to worst years. Thats more than I need to live on with less than I have to invest. Since my fiancee is going to keep working part time, we've also got a nice steady cashflow for a lean year and to cover taxes and extraordinary expenses.

The NAV has wandered with the stock market but in a more muted manner than the typical stock fund. Over any 5 or 10 year period the nav improvement exceeds inflation.

Admiral shares charge a 0.2% management fee.

On face value, it appears that if you had at least 500K and can live on $30k/year or less, you could park your investments here, have it pay out the dividends and gains to your checking acct, and go fishing for 30 years.

The thing that keeps plucking my string is every bond expert on the planet saying that the bond market is going off a cliff within a year. But then the Fed talks down interest rate and inflation increases.

Yes, I do need ritalin
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Re: Best place to park cash for 1-?? months
Old 12-30-2003, 10:33 AM   #42
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Re: Best place to park cash for 1-?? months

on Dec 29th, 2003, 11:42am, Cut-Throat wrote:Ted,

Back on the topic of parking cash. I am in a similar situation and specifically are you recommending the Vanguard VBISX - for this?

Quote:

The data on the performance of Vanguard's short term bond fund presented by Bob Smith says it all. *Note also that there was only one year when this fund had a negative return, which was very small. *Thus, I feel very comfortable using it for "cash" beyond my immediate spending needs, which I take care of with a checking account.
I'm getting a bit confused here as to who is talking about which Vanguard bond fund...

VBISX is Vanguard's Short Term Bond INDEX fund.

VFSTX is Vanguard's Short Term Corporate Bond fund.
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Re: Best place to park cash for 1-?? months
Old 12-30-2003, 11:17 AM   #43
 
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Re: Best place to park cash for 1-?? months

Hi Telly,

I'm glad you asked, I did not want to again. I am as confused as you are
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Re: Best place to park cash for 1-?? months
Old 12-30-2003, 12:41 PM   #44
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Re: Best place to park cash for 1-?? months

Both funds look fairly safe, the short term corporate bond fund has a slightly higher return, the short term index contains both corporate and government bonds, a lower return, and presumably a slightly improved margin of safety.

I believe Ted expressed a preference for the corporate short term fund in another thread, but perhaps he has other thoughts here.
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Re: Best place to park cash for 1-?? months
Old 12-30-2003, 04:44 PM   #45
 
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Re: Best place to park cash for 1-?? months

TH,

Just finished reading "What Wall Street Does not Want you to know".

They had a quote in there - "More money has been lost waiting for a correction in the Stock Market than the Corrections themselves"

I feel the same way as you do, but it's hard to admit that market timing is probably a lost cause.
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Re: Best place to park cash for 1-?? months
Old 12-30-2003, 05:23 PM   #46
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Re: Best place to park cash for 1-?? months

Oh I cant disagree.

But I just dumped my big beautiful house for a nice little tract house, and if I slide that cash into the market now with these vaporous prices and it drops and wipes out the nice gain I just scraped up, I'd be mighty PO'd. It just seems that whenever "everyone" thinks its going to keep going, thats when the anchor gets thrown overboard.

I had planned on moving into the vanguard short term corporate for a while, but I think i'll put a largish hunk of my uninvested capital into this vanguard wellesley income fund. Unless we see a sharp interest rate hike and/or inflation - - and I dont see that in 2004 - - I should enjoy a modest NAV improvement from the value stock portion of that fund and a nice income stream. I'll hold up a quarter to a third of the remaining cash for any correction that comes along. Plus I still have a fairly good size chunk invested and a big IRA thats split between vanguard healthcare and the total market index.

So all is not entirely lost on this thickhead.
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Re: Best place to park cash for 1-?? months
Old 12-30-2003, 05:35 PM   #47
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Re: Best place to park cash for 1-?? months

Quote:
VBISX *is Vanguard's Short Term Bond INDEX fund.

VFSTX *is Vanguard's Short Term Corporate Bond fund.
Here are the numbers for the two funds for the last eight years. The Index fund was created in 1994. The average duration for the Index fund is 2.5 years at the moment, while the duration of the Corporate fund is only 1.8 years. The current yield on the corporate fund is 2.98%, while the yield on the index fund is 2.39. Shorter duration, higher yield, and minimal risk - my money is in the corporate fund now. It's probably splitting hairs, but it seems a decent bet to me.

S.T. CORP S.T. INDEX
2002... 5.22% .......6.10%
2001... 8.14% .......8.88%
2000... 8.17% ....... 8.84%
1999... 3.30% .......2.08%
1998... 6.57% .......7.63%
1997... 6.95% .......7.04%
1996... 4.79% .......4.55%
1995... 12.74% ......12.88%
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Re: Best place to park cash for 1-?? months
Old 12-30-2003, 06:08 PM   #48
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Re: Best place to park cash for 1-?? months

Quote:
Unless we see a sharp interest rate hike and/or inflation - - and I dont see that in 2004
While you should be OK with short-term bonds, I'm curious about how you (or anybody else) can think we won't see a spike in rates real soon now.

All of the signs are there: stock dividends and prices are up, dollar is down, gold is up, interest rates are unattractively low, economy is picking up, fed has signaled higher rates, etc.

As far as I can tell, the only thing holding rates down is intervention by the BoJ to prop up the dollar (to keep the yen from taking off even more than it has), and that can't go on forever.

Failing to time entry into the stock market just means you might miss out on some upside, but failing to correctly time an exit from longer duration bonds could hurt, especially in the early years of retirement (for every 50% drop, you need a 100% gain just to break even).
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Re: Best place to park cash for 1-?? months
Old 12-30-2003, 06:48 PM   #49
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Re: Best place to park cash for 1-?? months

Two words: Election Year.

Plus the Wellesley funds bonds average moderate term rather than long. Even if they boost 50 basis points in the 2nd half of 2004 (and I'm not thinking they'll go that far before Dubya gets re-elected) it wont hurt that much.

On the other hand, I could be completely wrong.
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Re: Best place to park cash for 1-?? months
Old 12-30-2003, 07:26 PM   #50
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Re: Best place to park cash for 1-?? months

Quote:
Two words: Election Year.
Heh. Remember the immortal words of the elder George Bush regarding Greenspan: "I reappointed him and he disappointed me."

I really don't know how things are going to play out, but I'm in capital preservation mode until some of the artificial market manipulation stuff eases off and the markets are allowed to find their natural levels.
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Re: Best place to park cash for 1-?? months
Old 12-30-2003, 07:52 PM   #51
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Re: Best place to park cash for 1-?? months

I guess anything can happen. Everything seems to have a heavy downside.

Re: the markets. I had sincerely hoped we'd see the markets continue to settle downwards another six months, followed by a nice, steady, persistent upward trend. This rocketship back to near internet bubble levels for the indexes is very disconcerting. SOME consistency and reliability would be nice.

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Re: Best place to park cash for 1-?? months
Old 01-01-2004, 01:34 PM   #52
 
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Re: Best place to park cash for 1-?? months

Re. "everything seems to have a downside", life is like
that so you better get used to it. Life can be a struggle and our reward is the grave, so my advice is to wring
as much "life" out of each day as you can. To do
otherwise is foolish, IMHO.

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Re: Best place to park cash for 1-?? months
Old 01-01-2004, 04:15 PM   #53
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Re: Best place to park cash for 1-?? months

Oh gosh, I think life is a little better than that!

I guess my "everything" applied more to investments than general life.

Right now:

- According to most experts, bonds are due for a whacking within a year due to a variety of already listed reasons
- Stocks are run-up and many feel that the overall indices are overpriced
- Real estate is run up and riding a bubble
- Foreign and emerging market stocks have run up, but many still say they're cheap compared to US stocks. Really crappy medium to long term historical performance, but then again those areas continue to develop their economies and business practices, so taking ones eyes from the rear view mirror is necessary

You can still go into short term bonds and tips, but unless you're carrying a very large portfolio, I dont think you get a SWR.

That having been said, as of today i'm fully invested. My only cash is about a years expenses in my checking account.

I put about 2/3 of my port into the wellesley income fund. While the bond portion may get whacked, the worst four quarters dividends historically paid (even during bond bear markets) still coughed up enough cash for me to get by on. The average dividend results I can live very well on. Should the equities markets drop a bit at some point in the next year, I may reallocate half of this into equities.

About 6% went into the emerging markets index fund

About another 8% went split between the europe and pacific indexes.

The remainder, not a whole lot, went into the short term corporate index fund.

I have all of these in the taxable account, throwing dividends and capital gains direct deposit to my checking account.

In my IRA I converted the healthcare and total market index funds into the REIT index, explorer, and international explorer. About 6% of the total portfolio each. I figured the high turnover stuff would be best in the tax deferred account. This is a volatile piece of the port, and these funds arent 'bargains', but the health care and total market indices took the run up, so I traded expensive stuff for expensive stuff. I wont be touching this money for 20+ years. I'll reallocate it in the future, probably ending up in some balanced index. I just wanted some pizazz to go with my stodgy income fund, plus the potential for the small cap US & foreign and emerging markets makes some sense.

The taxable portion is mostly low cost (the Wellesley Income Admiral fund charges 0.20%, the rest are pretty inexpensive compared to peer funds.

If all goes to plan, the dividends and capital gains from my taxable account will exceed my living requirements. I'll see some NAV improvements in them over the long haul. If the equities market softens a little and I move some of the Wellesley fund into an equities-heavy fund, even more NAV improvement in exchange for some income. In the meanwhile, the IRA will hopefully do well. I should not need to draw off any of my core capital. Ever.

Unfortunately, there are at least a dozen experts for each investment type and category that says doom and gloom are coming up or its a bad pick. But I cant sit still or sit in short term bonds forever.

Wish me luck!!!
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Re: Best place to park cash for 1-?? months
Old 01-01-2004, 04:37 PM   #54
 
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Re: Best place to park cash for 1-?? months

TH,

I think you made a smart decision and as long as you stay with it for the long haul, you'll probably be OK.

The problems arise when in 6 months, your investments tank about 30%, you have to have the guts to hang in there. You will be rewarded over time, if you stay the course. Easy to say, tough to do!

I'm about to embark on a similar course, and you have to keep the faith. That is the only thing that works.

May God help us both!
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Re: Best place to park cash for 1-?? months
Old 01-01-2004, 07:37 PM   #55
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Re: Best place to park cash for 1-?? months

Looks like a very sane approach that should give you low volatility and a reasonable yield. I'm too chicken to have that much bond exposure right now, even the high quality intermediate term holdings in your Wellesley fund. So I'll just sit here on a pile of cash for a few more months while you guys enjoy your income.

Good luck all!
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Re: Best place to park cash for 1-?? months
Old 01-01-2004, 08:51 PM   #56
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Re: Best place to park cash for 1-?? months

Well I hope to god I dont see a 30% dumper. The reason why I diversified to a wide bond, foreign and REIT package was to avoid a drop that large. Even during the worst bond bear years the wellesley fund only lost 11%. I can live with that. I can live with 20%. Because it'll come back in 5, 7, 10 years. 30% would annoy me greatly because my first thought would be "great, I could be living in my mcmansion still with my money in cash and have a better position right now".

I hope the volatility is ok as well, but frankly that doesnt scare me a lot either. With a years expenses in the bank, regular income from my fiancee's side of the house, and (I believe) a worst case yield of $20k per year, the NAVs can wobble like weebles for all I care.

As far as the bond exposure. Color me amused. I've ridden my dad for years for his 100% EE bond portfolio. Its paying him 6+% right now and he's withdrawing below the interest rate on his bucket o' bonds. The bond guy working the wellesley fund gets great marks so I'm hoping I benefit *somewhat* from a non-index approach and he moves to cash or shorter term bonds. Either way, if it appears the bond market is positively headed for a large hole in the ground, and ideally if a fat drop in US equities occurs, I'll exchange some of that wellesley fund for more equity and perhaps trade some value for growth. The similarly managed and fee structured Wellington fund looks appealing. I can see my largest assets split between those two funds in the near future. When the prices are right.

I think I'll get to index funds at some point. I think in traditional markets they make sense, and vs badly managed funds and/or high fund rates, they make all the sense int he world. I just dont think we're in a traditional marketplace and these partly managed funds charge index rates. Maybe a lesson I have to learn (again) that all y'all have already burned in.

What I do appreciate is that folks are actually READING these massive missives I produce. Your experiences, different perspectives and information have really broadened my horizons. Between what i've gleaned here and through some recent readings, I think I've got a nice diverse portfolio for (todays) situation. Of course, I also know that concentration wins the day, but only if you're lucky,
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Re: Best place to park cash for 1-?? months
Old 01-02-2004, 09:33 AM   #57
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Re: Best place to park cash for 1-?? months


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Re: Best place to park cash for 1-?? months
Old 01-02-2004, 10:35 AM   #58
 
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Re: Best place to park cash for 1-?? months

Jarhead,

We do have some experts on this forum, and I do not count myself as one of them. Ted and JWR seem to have a lot of knowledge and I have learned from them both.

As far as the generational thing, I have a lot of friends in your generation and most of them have pensions, so they don't have to be concerned.

My generation mostly have no retirement plans at all , so the posters here are the exception. I think most of my generation plan to drop dead at their desks. Work never agreed with my fishing schedule that often , so I had to figure out a way to quit and still afford to go fishing.

BTW - with your jarhead moniker are you an ex-marine? Me - I'm an ex-squid, just did 4 years during the Vietnam War.



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Re: Best place to park cash for 1-?? months
Old 01-02-2004, 12:02 PM   #59
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Re: Best place to park cash for 1-?? months

Jarhead -

Read Gillette Edmunds book on how to retire early. Its available on Amazon.com and other places. That is the catalyst that started making me think a little differently about investments.

The book and this web site reinforced some basic things I had already "sort-of" learned. Perhaps all of this is fundamental to many and even is covered elsewhere, and its certainly off-topic to "best place to park cash", but here goes...

- Investment experts who take your money are simply selling you a cookie cutter approach that they've developed once and re-used, or steering you into something that they'll make money off of if you buy it. The old adage of "if you're so smart, why arent you sitting on a yacht somewhere instead of doing this" applies. I get great exposure to this from my dads neighbors. He lives in an affluent retirement community, although he owns the smallest and cheapest model that isnt a lot more expensive than a typical home on the street. He has tons of friends and neighbors in their 60's-90's. Lots of them are paying 3%+ to advisors to help them lose their money in buckets. Learn the ropes, use low cost investment services like those from vanguard if necessary, and once you get yourself into the right distribution of instruments, it shouldnt take a lot of time or knowledge to keep things going. Buying 3 uncorrelated index funds and doing a yearly rebalance of assets may be all you need.

- Non-correlated assets, IE not puting all your eggs in one basket. Many think this is splitting your money between US stocks and bonds, and the only question is how much. The "real savvy" guys might throw in a little european stock or some small cap US stocks. Only problem here is the US stock and bond market have experienced periods of stagnant behavior, sometimes for a decade or more. Some argue we're smarter about how the economy works and that this wont happen again. I doubt that. Also US stocks and bonds often "move in the same direction" to certain stimuli. So the trick is to find 3-5 non-correlated assets like real estate, bonds of different duration, stocks of different sized companies, stocks and bonds in established countries such as most of europe, stocks but probably NOT bonds in the wild west emerging market countries, oil and gas pumpers, precious metals, etc. Some of these "move" the same way to a certain stimuli, like inflation or rising interest rates. Several move in different directions or not at all.

- Investing "in the rear view mirror". You look at 20 stock funds and buy the one with the best 10 year return record, and put no thought into the one with the 10 year losing record. Only problem there is the "good one" might be tapped out while the crappy one might be about to take off. Japan has sucked for a long time, but there is some belief that "new management" is going to enact the economic reforms that will recharge the country and its stock market. Hence the lousy investment prospects there might turn out to be the best opportunity to make a lot of money. Same with emerging markets. Some of the african, latin american and pacific rim countries are just starting to pull together some semblance of consistentcy and a number of lively companies might just make a long term go of it. A few bucks in the right places there might add a lot of juice.

- US stocks and bonds may not be the place for your money. Many non traditional experts think the US market is overdone and we may be locked into a trading range for some time. It may be too many highly developed companies - what retailer is going to push wal-mart over? - or just that the economy is fully developed overall. Some say europe and japan are where the US was 25-35 years ago and the big bargains and run-ups could be in one of those countries. Some say even europe is already "done" and you need to focus on the emerging markets.

- So that brings us to the crux. Pick 3-5 of Edmunds proposed asset classes in a mix that should produce the level of return you need, coupled with risk you can swallow, in a ratio that spreads the cash around satisfactorily. Then periodically take money away from the 'winners' that have run up and put it into the 'losers' that went the other way. This takes into consideration that the winners have already run up and the losers are now better bargains than when you first bought them.

Bottom line is read a lot, keep an open mind, and realize that many "experts" dont know any more than you do.
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Re: Best place to park cash for 1-?? months
Old 01-03-2004, 08:06 AM   #60
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Re: Best place to park cash for 1-?? months

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Regards, Jarhead
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