cash equivalent

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hotwired

Recycles dryer sheets
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Jun 9, 2008
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This is a question created by my incessant need to "overthink". Can I reasonably classify vanguard short term corporate bond as "cash"? I want to position my portfolio defensively and move 5% each from stock and bond categories to "cash" but I think I'm willing to accept a small amount of risk with VSTC. I may be off, but I'm thinking I'm looking at a 2% maximum drawdown risk give or take? Is my reasoning here sound or should I just bite the bullet and call cash cash and accept .01% vs. 2.2% interest?
Thank you.
 
If you want cash, then look at a higher yielding savings account at a bank. Trying to say a short term bond is cash sounds silly. I would call a short term bond fund a bond fund. Being short term should lower the risk, but not make it cash.

If you want cash, use cash. If you just want lower risk, lowering your duration and using high quality bonds may be sufficient. But don't assume it changes the asset class.
 
ST vs cash

Thank you. I'm looking for a place to temporarily reduce risk within my retirement accounts, so although there are some decent yield deals out there, it wouldn't be practical for me in this case. I get what you're saying though...and see the wisdom.
 
I never think in terms of "cash." For short term liquid assets I buy t-bills on the auction. They are easily sold if "real cash" is needed and have essentially zero risk. Yields don't quite match brokered CDs but are close enough for me.

I don't like bond funds on general principles, but especially don't like them in a rising rate environment due to the likelihood of principal loss.

We do hold a bunch of SAMBX, though, which has been a decent performer and is somewhat insulated from the rising rate risk and, because of the seniority of floating rate bank loans, is also somewhat insulated from the credit risk associated with junk bonds.

If you anticipate a need for "real cash" within a few hours of an event don't hold real cash at near-zero yield. Instead, set up a credit line. I have an unused $250K line that is left over from a business transaction. So if I need cash this afternoon, I'll hit the line, sell some t-bills and cover the line when the t-bills settle. If it's just small cash, I have a $10K line on my Schwab checking account that I can use, too.
 
hotwired said:
Thank you. I'm looking for a place to temporarily reduce risk within my retirement accounts, so although there are some decent yield deals out there, it wouldn't be practical for me in this case. I get what you're saying though...and see the wisdom.
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Fidelity's government money market fund 7 day yield is 0.97 %. This is absolutely liquid, absolutely composed of securities without default risk, and a much better rate than what you quoted. Incidentally, i wonder how you came up with that low-ball rate.

Ha
 
hotwired said:
This is a question created by my incessant need to "overthink". Can I reasonably classify vanguard short term corporate bond as "cash"? I want to position my portfolio defensively and move 5% each from stock and bond categories to "cash" but I think I'm willing to accept a small amount of risk with VSTC. I may be off, but I'm thinking I'm looking at a 2% maximum drawdown risk give or take? Is my reasoning here sound or should I just bite the bullet and call cash cash and accept .01% vs. 2.2% interest?
Thank you.
Click to expand...

Since that fund has a duration of 2.7 according to Vanguard, I would not consider it to be a cash equivalent. If you want to stay under the Vanguard tent you could go with the Prime MM fund... it is currently yielding 1.46% and has no interest rate risk.
 
rethinking

Thank you all. I did not realize VG and Fidelity MMKTS yielded that high right now. I'm still stuck mentally back when nothing was yielding more than 1/2%. I certainly see that if I want to move to cash, I need to move to cash. My funds are in BOTH fidelity and VG so both those funds mentioned will slide in nicely. I am simply balancing the portfolio and "slanting" conservative (i.e. instead of 40/40/20 stock, bond, alternative, I'm going 35/35/15/15 with the final 15 being cash.)
 
The best online savings accounts are currently paying between 1.5%-1.7% - FDIC insured and fully liquid. As has been said before, I would not consider short term bond funds as cash in a rising rate environment.
 
haha said:
Fidelity's government money market fund 7 day yield is 0.97 %. This is absolutely liquid, absolutely composed of securities without default risk, and a much better rate than what you quoted. Incidentally, i wonder how you came up with that low-ball rate.

Ha
Click to expand...
What's Fido's symbol for this one ?? They have a veritable Alphabet Souffle -- SPRXX or SPAXX or FZCXX ??
 
Last edited:
I keep about 6-8 months spending in Vanguard money markets (cash), and a while back moved a chunk of dry powder to Vanguard Ultra-Short-Term Bond Fund (VUSFX).

It is a total bond market type fund with both maturity and duration at ~1 year, and an objective to hold each bond to maturity. In its 3 years operating the NAV has only fluctuated plus or minus 0.25%. It is yielding 1.99% and seems to be climbing the yield curve nicely.
 
We use I-Bonds for a portion of our cash. In general I-Bonds interest rates are comprised of 1) a base rate (currently very low as you can imagine) and 2) an inflation component. The current interest rate being paid is 2.58% and that will increase/decrease as inflation changes.

I-Bonds are not for everyone but they can provide a relatively liquid means of putting cash aside with the benefit of knowing you can access the cash in one or two business days when needed. Not unlike CD's there are some "strings attached" when it comes to cashing I-Bonds but those constraints have not posed a problem for us - we work within the rules and do not have any major complaints.

Here's the link to the Treasury Direct web page along with a few snips from the web site:

https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds.htm
 

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nvestysly said:
We use I-Bonds for a portion of our cash. In general I-Bonds interest rates are comprised of 1) a base rate (currently very low as you can imagine) and 2) an inflation component. The current interest rate being paid is 2.58% and that will increase/decrease as inflation changes.

I-Bonds are not for everyone but they can provide a relatively liquid means of putting cash aside with the benefit of knowing you can access the cash in one or two business days when needed. Not unlike CD's there are some "strings attached" when it comes to cashing I-Bonds but those constraints have not posed a problem for us - we work within the rules and do not have any major complaints.

Here's the link to the Treasury Direct web page along with a few snips from the web site:

https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds.htm
Click to expand...

Note that you can only buy $10K per person per year. I have been buying them for a while and consider that chunk of "cash" my emergency fund. It is about a year of expenses.
 
hotwired said:
.... Can I reasonably classify vanguard short term corporate bond as "cash"? .... I'm willing to accept a small amount of risk with VSTC. ... Is my reasoning here sound or should I just bite the bullet and call cash cash and accept .01% vs. 2.2% interest?....
Click to expand...

I posed this exact question to my Vanguard Flagship Services Rep. Her said "sure, consider it as cash assuming you're ok with some principle volatility".
 
I have been holding part of my "cash" in the Short term index fund for many years. Most of my other "cash" is in Ally savings or PMMF. If I ever used up all of my Ally/PMMF cash, I would tap the STB fund. So far, I have never had to use any funds in the STB fund. It just keeps growing.


I call it cash. Feel free to call it what ever you like.
 
haha said:
Fidelity's government money market fund 7 day yield is 0.97 %. This is absolutely liquid, absolutely composed of securities without default risk, and a much better rate than what you quoted. Incidentally, i wonder how you came up with that low-ball rate.

Ha
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Vanguard appears to offer only one federal money market fund, VMFXX. The expense ratio is 0.11 percent and the compound yield is 1.30 percent. The closest fund I see on Fidelity is SPAXX. with a 7 day yield of 0.97 percent AND an expense ratio of 0.42 percent. If I was just looking for a reasonably safe place to stockpile short term cash, I would probably choose Vanguard for that purpose.
 
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