CD’s in your AA

[pb4uski]

“ both a three-month U.S. Treasury bill and a three-year U.S. Treasury note purchased three months from maturity qualify as cash equivalents. However, a Treasury note purchased three years ago does not become a cash equivalent when its remaining maturity is three months”

How does this make sense? Does the T-note know if it was just purchased or 3 yrs ago?

It's where they decided to draw the line, but I think that it makes sense. If you but a TNote with 3 years left to maturity then you intend for it to not be a short term investment so it goes into fixed income and then stays in fixed income until it matures. On the other hand, if you buy a TBill or TNote that matures in 3 months then it is a cash equivalent. I don't have any problem with that.

What is gained by making it more complicated and reclassifying something when it has 3 months left to maturity to cash equivalants?

 

[jazz4cash]

It's where they decided to draw the line, but I think that it makes sense. If you but a TNote with 3 years left to maturity then you intend for it to not be a short term investment so it goes into fixed income and then stays in fixed income until it matures. On the other hand, if you buy a TBill or TNote that matures in 3 months then it is a cash equivalent. I don't have any problem with that.

What is gained by making it more complicated and reclassifying something when it has 3 months left to maturity to cash equivalants?

I agree we are splitting hairs and everyone can choose what they like. For the sake of accuracy, it makes sense to me to reclassify these securities when they cross under my arbitrary time marker. I want to keep ~5-8% available for spending within 2 years. If I do not reclassify these I will probably dilute my AA with more fixed income than I actually need to be liquid. That could be good or bad depending on the yield curve, but it is less accurate than lumping the 2 yrs and under securities together. This also helps me since my FI ladder steps are very lumpy. It's clicking a box one time in the life of the security.

 

[youbet]

I agree we are splitting hairs

There's the youbet "understatement of the day." (An award I haven't doled out in some time........)

 

[Badger]

Since it is my spreadsheet I call them CDs until they mature. Then I call it cash.

 

[mountainsoft]

Making my annual updates to my nest egg tracking sheet. Part of that sheet is to track my AA. Prior to 2023 I’ve never owned CD’s. Was noticing that Vanguard classified my CD’s as bonds. I would’ve thought they should be classified in the cash/cash equivalent part of AA.

What say y’all?

Personally, all I care is if my funds are taxable, tax-deferred, or tax free. CD's could fit into any of those.

Currently, about 50% of my tax free category (Roth) is in CD's. The rest is S&P 500. I ditched bond funds a couple years ago.

I have no tax deferred, but all of my taxable is in a high yield savings account (no brokerage account).

I have enough CD's to guarantee fixed income until we start taking social security.

 

[Finance Dave]

I would think it would depend on whether you plan to hold to maturity. If so, I'd count them as cash. Price fluctuations until maturity are meaningless as long as you hold to maturity.