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Old 08-05-2013, 10:37 AM   #21
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How are Short term Treasuries at 0.2% yield any safer or more liquid than my credit union cash account at 1% yield?
Really? Osprey FlyerFDIC Seizes Missouri Bank, NCUA Closes 2 Credit Unions - Osprey Flyer
Granted, the FDIC/NCUA will eventually get you your money -- up to the insured limit.

In terms of safety and liquidity, US Treasuries are the gold standard. Everything else is lesser. Why do you think that the latest Treasury auctions were around $35 BILLION (not million, billion) per issue -- 4 week, 13 week, 26 week, 52 week, 5 year, 2 year? Treasury Auction Results

Now, you may prefer to reach for a bit more yield by going with a Credit Union, but don't kid yourself that it's the same quality.

Moreover, while individuals can get 0.8% to 1% in a bank/CU, these studies are for large groups of people, not individuals. No way can people on aggregate deposit hundreds of millions or billions of dollars in CUs.


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I believe that slight but real difference could mean a difference in the impact of cash buffers on portfolio stability and survivability which these papers are questioning.
I doubt it would make any significant difference.

$1M portfolio, 4% SWR, 5 years in cash bucket = $240K in the cash bucket.
One-Year Treasury Constant Maturity yield is 0.11%. That's $264/yr on $240K. Pitiful.
Alliant CU pays 0.70%. That's $1680/yr
If you could get 1%, that's $2400/yr.

For an account the size of $240,000, the additional $1426 is so small it's invisible. Even $2200/yr is not going to make any difference in the portfolio stability and survivability.
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Old 08-05-2013, 11:08 AM   #22
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.....Moreover, while individuals can get 0.8% to 1% in a bank/CU, these studies are for large groups of people, not individuals. No way can people on aggregate deposit hundreds of millions or billions of dollars in CUs....
Your argument above doesn't seem very relevant given the composition of this forum and the subject of the thread.

I would prefer FDIC insured accounts to Treasuries only because Treasury yields are so pathetic. IMO for individuals, FDIC insured savings accounts are better than short term US government full faith and credit instruments - it's the same counterparty backstopping the credit risk at the end of the day, the yields are better and there is no interest rate risk.
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Old 08-05-2013, 02:34 PM   #23
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I doubt it would make any significant difference.

$1M portfolio, 4% SWR, 5 years in cash bucket = $240K in the cash bucket.
One-Year Treasury Constant Maturity yield is 0.11%. That's $264/yr on $240K. Pitiful.
Alliant CU pays 0.70%. That's $1680/yr
If you could get 1%, that's $2400/yr.

For an account the size of $240,000, the additional $1426 is so small it's invisible. Even $2200/yr is not going to make any difference in the portfolio stability and survivability.
Throwing away the chance to earn an extra couple of thousand dollars a year on the unsupported theory that it's "not going to make any difference in the portfolio stability and survivability" is not what I would call wise money management. It's similar to making the claim that investing in low cost Vanguard funds instead of other mutual funds with ~1% expense ratios won't have any long term effect on portfolio performance. A quick visit to Vanguard's web site should help educate you that small improvements in return, either through increased yield or lower expenses, will indeed dramatically improve long term returns and help insure portfolio stability and survivability.
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Old 08-05-2013, 05:13 PM   #24
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The Vanguard information is a non sequitur.

Sorry, but the data I have is directly on point and is why I said what I did. My claim is not unsupported.

I've run it using both 1-year Treasuries and 10-year Treasuries. The 10 yr, of course, yields a lot more than the 1 yr, and more than savings accounts or 6-month CDs. (You wouldn't use anything with a 10-year duration, though. Too much interest-rate risk.)

The 10-yr is yielding about 2% now. But it makes little difference in the results of a 30 year portfolio survival.

I'll be posting the link to my spreadsheet in a few days.
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Old 08-05-2013, 05:23 PM   #25
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I use cash to make money. We are still getting 4% on some PenFed Cd's, and make 0.75-0.9% on cash in accounts. The cash in accounts is used to fund property loans, which juice our overall cash accounts up to about 6+%. At any time we manage to have about 25% cash, 25% CD's, and 50% loans. The cash is very liquid, as opposed to the rental property, which really isn't.
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Old 08-05-2013, 05:36 PM   #26
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Here's the link to my spreadsheet.

"Withdrawals by cashbucket rules"

https://www.dropbox.com/s/xf4ma5blug...cket_rules.xls
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Old 08-05-2013, 05:44 PM   #27
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The cash is very liquid, as opposed to the rental property, which really isn't.
No investment RE here, only cash/bond/stock. Bonds and stocks are also extremely liquid (just one click of the mouse and they turn into to cash!).

However, they do not really flow but ebb.
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Old 08-05-2013, 06:26 PM   #28
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If I include my CDs in the cash account calculations, I would say about 2.75%.
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Old 08-05-2013, 10:06 PM   #29
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The Vanguard information is a non sequitur.

Sorry, but the data I have is directly on point and is why I said what I did. My claim is not unsupported.

I've run it using both 1-year Treasuries and 10-year Treasuries. The 10 yr, of course, yields a lot more than the 1 yr, and more than savings accounts or 6-month CDs. (You wouldn't use anything with a 10-year duration, though. Too much interest-rate risk.)

The 10-yr is yielding about 2% now. But it makes little difference in the results of a 30 year portfolio survival.

I'll be posting the link to my spreadsheet in a few days.
I applaud your attempts to model this in a spreadsheet. The spreadsheet in your link is complicated enough that I may easily be missing what you were attempting to show. If so, I apologize in advance for doubting your calculations. But I totally fail to see how your spreadsheet suggests that the yield on your cash bucket is unimportant for portfolio sustainability. I would say that it indicates exactly the opposite. The only place in your spreadsheet where I see interest being credited to the cash bucket is in column L, which uses the one year T-note yield from column AI in the Data tab to calculate interest. When I modify column L to instead use ten year treasury yields from column AH in the Data tab, the final value of the buckets portfolio increases from $54,178 to $129,599 - an increase of $75,421.

I then tried a second modification of your spreadsheet. The discussion in this thread was to the effect that by carefully shopping around for the best deals on FDIC insured account, it should be possible to get about an extra 1% interest above short term treasury yields. To reflect the benefit of an extra 1% cash yield over the life of a portfolio, I then modified column L to use one year T-notes plus 1% as the interest rate. The final value of the buckets portfolio increased to $145,103. That's an increase of $90,925 over someone who neglects to shop around for the best deals.

So your spreadsheet strongly suggests that maximizing yield on the cash portion of a portfolio is critical to sustainability and survivability. I know that I'm not wiling to toss away a high five-figure increase in performance by being careless with the yield on my cash investment.
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Old 08-06-2013, 08:42 PM   #30
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karluk,
Actually, I wasn't "attempting to show" anything, but rather to create a backtest of the strategy using historical data, and then see what happens.

What I was wanting to see was if the cash bucket strategy does indeed have a better outcome, and if so, how much better.


About the yield in the cash bucket ... What I said earlier was that reaching for a higher yield doesn't makes much difference in the results of a 30 year portfolio survival. The spreadsheet -- including your modifications -- shows just that. Using the 1-yr Tbill the portfolio survived for 35+ years.

Survival means the account is not empty. Which it isn't, so it survived. It is true that final balance is larger with a higher yield --- but the benchmark was survival vs. non-survival, not comparing one final balance to another.

The big fact that got missed in the details of muddling about cash yield is that even 1yr Tbill + 1% greatly underperforms the "no cash bucket" strategy.
Anyway, beginning at 2000, the cash yield becomes immaterial. The cash bucket quickly becomes empty so it doesn't matter what the yield is.

For a 1973 start, the final balances are
1y t-bill: $54K
1y t-bill + 1%: $145K
no cash bucket: $211K

Earning the extra 1% gets you $91K more.
Having no cash bucket gets you $157K more.


For a 1975 start, the final balances are
1y t-bill: $983K
1y t-bill + 1%: $1076K
no cash bucket: $1429K

Earning the extra 1% gets you $93K more.
Having no cash bucket gets you $446K more.
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Old 08-07-2013, 02:51 PM   #31
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I work with a WR of ~2.5%; hence if 8-9% of investable assets is sitting on the sidelines making only 0.85% I don't consider it a big drain on performance. Instead I look at it as a way to generate confidence and comfort. Mind you this is a relatively recent phenomena for me; when markets are rising it's hard for me to keep this cash just sitting on sidelines. I guess that's the greedy part of me as opposed to the "let's be safe here" me.
I typically have ~ 5 years of budget $ saved. This assumes my consistent annual yield as a contrubution. For example, if I need $50K per year. I simply take $50(+inflation) - avg. investment income from div/int/cap gains distributions over time = the $ amount that I have on the sidelines in a high yield savings account. Funny this is that it is always ~ 10%.

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