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I guess my theory has been that if the security is not ownership [like stock], then it's probably some sort of loan I've made to someone/entity and am getting paid interest on that loan.
For example, I'd consider REITs equity because it's ownership, and I get my share of the profits/earnings through the REIT dividend. Just like I'd consider a share of GE equity because it's ownership, and I get my share of the profits/earnings through dividends, earnings growth, share appreciation, etc. Whether or not there's a secondary market for these stocks is immaterial to whether or not these stocks are "equity", IMHO. For years and years, SAIC was owned by its employees and not publicly traded, and it's shares were valued on a quarterly basis by an outside firm, but that didn't make the shares owned by the SAIC employees not equity.
But, I'd consider a MM [either bank or mutual fund], CD, I bond, Treasury Bill/note/bond, etc., fixed income because I'm making a loan to someone/some bank/some corporation. I don't think whether I have the ability to resell that fixed income asset to someone else makes it any different. For example, I'd consider a 5 yr CD to be a similar type of fixed income investment as a 5 yr Treasury note, or probably more precisely a 5 yr STRIP if the CD interest in reinvested zero-coupon esque. Just because the CD at Pen Fed, or I bond, is not marked-to-market and I can't resell it in the market doesn't make it "not a loan/IOU".
Obviously, a MM is very very very short term fixed income instrument, and a 30 yr T-bond is a very very very long fixed income instrument. So, you could certainly say that MM, 1-5 yr bonds/CD, ST bond fund are all short term fixed income, while the 30 yr T-bond/TIPS, IT term bond fund, LT bond fund, TIPS fund, are all longer term fixed income. But they're all fixed income IMO.
If I'm physically holding cash [ i.e. dollar bills] then that's cash, but if I deposit those dollars at a bank, I think that I've loaned the bank money. The terms of the loan like (1) the ability to immediately convert into dollars at any time or (2) agree to not to get paid back the principal for up to 5 yrs or (3) whether the interest paid is fixed or variable doesn't change the fact that I still just loaned the bank my dollars and am now a creditor of the bank.
Now, whether you hold a mix of very ST fixed income, IT and/or LT fixed income, or perhaps just ST fixed income, will depend on your own personal circumstances and liquidity needs. For example, someone far from retirement, or withdrawing money, may choose mostly LT fixed income, while someone closer or in retirement may choose to increase ST fixed income b/c of liquidity needs.
- Alec
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