Cash alternatives

[mrfeh]

Actually, selecting for dividend stocks is a suboptimal strategy, as has been debated here many times. Dr. Ken French explains in this brief video: https://famafrench.dimensional.com/videos/homemade-dividends.aspx

+1

 

[Midpack]

Equities, bonds, cash, PMs, RE, etc. We all have our portfolios. Most of our portfolios have been up - way up, the past few years. We don't sell our stocks or bonds or REITs or gold because they drop in value. We rebalance and wait for happier days. In the case of cash, it allows us to "live" without selling a depressed component of our portfolio. Why would we "sell" our cash when it can't keep up with inflation? It's still performing its function within our portfolio. Stay the course is what we hear when anything else is depressed. Why is cash any different? YMMV

Because as you well know, the portfolio steadying effect of cash and bonds hasn't performed this poorly for several generations. Sooner or later (all types of) bond NAVs have to go down before they can go up again, and interest rates haven't been this bad this long for a long, long time. Add high PE market multiples and a recent inflation spike, and it's no wonder people are searching for "answers" once again. Unfortunately there's no place to hide...

 

[finnski1]

Because as you well know, the portfolio steadying effect of cash and bonds hasn't performed this poorly for several generations. Sooner or later (all types of) bond NAVs have to go down before they can go up again, and interest rates haven't been this bad this long for a long, long time. Add high PE market multiples and a recent inflation spike, and it's no wonder people are searching for "answers" once again. Unfortunately there's no place to hide...

Yes. that is a sobering chart to me. I am just old enough to remember 16% mortgages and also 12% CD's. I'd obviously take the latter right now.

 

[OldShooter]

... Unfortunately there's no place to hide ...

"The later Stoics of Roman Imperial times, Seneca and Epictetus, emphasize the doctrines ... that the sage is utterly immune to misfortune and that virtue is sufficient for happiness." https://plato.stanford.edu/entries/stoicism/

"I am a rock ... " Paul Simon

"This too shall pass." Persian Adage

 

[GrayHare]

Actually, selecting for dividend stocks is a suboptimal strategy, as has been debated here many times. Dr. Ken French explains in this brief video: https://famafrench.dimensional.com/videos/homemade-dividends.aspx

I doubt someone who is 70% cash is going to be sanguine about the beta that comes with going for alpha. They might be comfortable with small steps there, though.

 

[Graybeard]

I have a CD maturing this weekend. I have been watching the rates at Ally and the online savings rate is probably better than a CD especially a 12 or 14 month CD. I have almost 10% of my net worth in cash in taxable accounts. I know it's losing to inflation but buying equities at these levels seems to be just as bad. If or when the market drops or corrects, at least the cash can be put to work. Fortunately, I don't need income from FI cuz there ain't none.

 

[Montecfo]

We are far afield of the OPs question. Surely dividend stocks or equities of any sort are not cash alternatives.

Maybe ST bonds but that's about it.

 

[mrfeh]

buying equities at these levels seems to be just as bad.

It's not.

After all the market timing threads over the years, I can't believe people still think this way.

 

[Midpack]

We are far afield of the OPs question. Surely dividend stocks or equities of any sort are not cash alternatives.

Maybe ST bonds but that's about it.

That happens with these threads every time. Someone always says take more risk…which isn’t a cash alternative. Neither are ST bonds unless you buy and hold to maturity.

 

[Chuckanut]

Yes. that is a sobering chart to me. I am just old enough to remember 16% mortgages and also 12% CD's. I'd obviously take the latter right now.

+1

In my investing life time, we've gone from double digit interest treasury bills to near zero rates.

The one common factor is that double digit rates or near zero rates, in both cases the real return after inflation and taxes was and still is negative. Aren't we lucky.

 

[OldShooter]

That happens with these threads every time. Someone always says take more risk…which isn’t a cash alternative. Neither are ST bonds unless you buy and hold to maturity.

Natural enough. I think we humans have evolved to hate problems for which there are no solutions, like increasing yield on cash without increasing risk. So we flail.

 

[JJpop]

Look at MYGA’s.
They are fixed annuities with terms of 2 to 10 years.
Very similar to CD’s if you stay within your state’s guarantees.
Currently in the 2 to 3 % range for most.
Not up to inflation but better than money market or cds.

 

[gregorit]

70% cash? Yikes. I wish I were rich enough to throw away money like that.

 

[meleana]

In addition to our stock mutual funds and stock brokerage account ( taxable and tax deferred), we have $200,000 in cash and another $250, 000 in a stable value fund inside a 401k. Then we have $155,000 in a treasury money market in an IRA. So a lot if cash.

That $200,000 we have to live on for 4 years of Roth conversions - and pay the taxes on the Roth conversions- starting next year- so no way and I am investing it.

Some of the $155,000 in the IRA I will be investing per my financial advisor’s advice in a few weeks. Most likely bond funds.

I want to keep the stable value fund as a future emergency fund.

I did just purchase $10,000 in I Bonds and over the past years that is where I put extra cash for a better return. I could have done another $10,000 this month under my spouse’s name but I felt it was cutting it too close in terms of the cash needed for future living expenses during the Roth conversions. I don’t want to touch IRA or taxable brokerage account money until after the conversions are over, SS starts for husband ( age 70)and his required RMDs kick in at age 72.

My SS ( age 70)will come two years after his. Then I guess my RMDs at age 72 after that.

Phew!

 

[mystang52]

Why not I Bonds? If one may need cash quickly, leave some $$$ in savings.
I have Bonds going back to the 90's, and I'm buying new I Bonds now.
If an unlikely event requires me to tap into cash beyond my liquid savings, can always cash in older Bonds.

 

[pb4uski]

I agree... even if you bail after 1 year you'll get at least 3.53% and probably more... a great place for short term money of one year or longer.

 

[Caper]

Cash Alternatives

There are few risk free alternatives to cash, but here are a few:

1). IBonds- 10k limit per taxpayer, per year purchase limit, but currently paying a rate over 7%. I believe these bonds should be part of everyone’s allocation.

2). If you have a Traditional IRA, and a 401k with a stable value fund- find out if they allow an IRA rollover to the 401k (reverse rollover), and then buy into the SV fund (I have done just this starting a little over a year ago with about 60% of my bond holdings). Current SV yield in my 401k is 2.4%- better than the losses racked up by most bond index funds this year.

3) Bank hi yield savings accounts paying around .50%.

These are generally the best risk free options, but there are other alts with some risk such as: hi yield corporates, and preferred stock index etfs (some of which I do have allocations to.

 

[jimbee]

Cash isn't risk free either.

 

[ERhoosier]

Why not I Bonds? If one may need cash quickly, leave some $$$ in savings.
I have Bonds going back to the 90's, and I'm buying new I Bonds now.
If an unlikely event requires me to tap into cash beyond my liquid savings, can always cash in older Bonds.

Agree 100%. iBonds pay rate of inflation (sometimes plus a small bit of fixed interest) and can be tax-deferred. I kick myself regularly for not building a better iBond position over the years. IMHO- Discussion of inflation hedges starts AFTER one has maxed out their iBond purchase allowance for the year.

Also agree with prior posts that reaching for interest entails risk these days. With interest rates set to rise (Fed pretty much says so, and massive new Gov't spending seconds the notion), it just ain't worth risking ANY principle for a fraction of a percent of current interest.

Personally my 'cash' allocation is CASH (FDIC insured), and my bond (fixed income) allocation is short term (1-2 yr max planning to hold to maturities).

 

[Markola]

The OP appears long gone, so I won’t bother to comment.

 

[Lstansbury]

There are few risk free alternatives to cash, but here are a few:

1). IBonds- 10k limit per taxpayer, per year purchase limit, but currently paying a rate over 7%. I believe these bonds should be part of everyone’s allocation.

2). If you have a Traditional IRA, and a 401k with a stable value fund- find out if they allow an IRA rollover to the 401k (reverse rollover), and then buy into the SV fund (I have done just this starting a little over a year ago with about 60% of my bond holdings). Current SV yield in my 401k is 2.4%- better than the losses racked up by most bond index funds this year.

3) Bank hi yield savings accounts paying around .50%.

These are generally the best risk free options, but there are other alts with some risk such as: hi yield corporates, and preferred stock index etfs (some of which I do have allocations to.

Thanks for the idea about the SV -- -- would love to stick another wad of cash into the old 401K SV fund that is paying 2.5% gauranteed.

Ditto on the MYGAs, Fidelity has a few available -- in my state they are only paying 1.65% for 3 year options rated at least A something. Not going longer than 3 years.

 

[Old Microbiologist]

Physical gold in your own possession can't be beaten. Alternatively, Bitcoins are a good alternative. I have $250k in bitcoins from coins I mined back when it was around $200. That may be all we have left if the US dollar collapses.

 

[Kat07]

Why not I Bonds? If one may need cash quickly, leave some $$$ in savings.
I have Bonds going back to the 90's, and I'm buying new I Bonds now.
If an unlikely event requires me to tap into cash beyond my liquid savings, can always cash in older Bonds.

It’s good I read this thread today! I just looked on Treasury Direct and it says I-bonds issued from November 2021 thru April 2022 are paying 7.12%. I was wondering what to do with quite a bit of cash I have from selling some land and am now going to buy $10,000 today and another $10,000 in January 2022. Thanks for the tip!

 

[Koolau]

The OP appears long gone, so I won’t bother to comment.

OP? We don't need no stinking OP!

We're on a roll without OP!

In addition to our stock mutual funds and stock brokerage account ( taxable and tax deferred), we have $200,000 in cash and another $250, 000 in a stable value fund inside a 401k. Then we have $155,000 in a treasury money market in an IRA. So a lot if cash.

That $200,000 we have to live on for 4 years of Roth conversions - and pay the taxes on the Roth conversions- starting next year- so no way and I am investing it.

Some of the $155,000 in the IRA I will be investing per my financial advisor’s advice in a few weeks. Most likely bond funds.

I want to keep the stable value fund as a future emergency fund.

I did just purchase $10,000 in I Bonds and over the past years that is where I put extra cash for a better return. I could have done another $10,000 this month under my spouse’s name but I felt it was cutting it too close in terms of the cash needed for future living expenses during the Roth conversions. I don’t want to touch IRA or taxable brokerage account money until after the conversions are over, SS starts for husband ( age 70)and his required RMDs kick in at age 72.

My SS ( age 70)will come two years after his. Then I guess my RMDs at age 72 after that.

Phew!

Sounds a bit like us when first FIRE'd. When I first retired, I kept all the cash I could to complete my I-bond conversion strategy. We sold our mainland house and netted $150K. My last year at Megacorp, I had been stashing cash as well - even though I didn't know it was my last year. We not only bank-rolled our Roth conversion strategy, but we were able to do a cash-reno on our place in the Islands. Cash can be good (though not so much right now.) YMMV

 

[feelthefreedom]

Regression to trend: 50% higher than dot-com metrics

Reading the quotations here: Taylor Larimore's market timing quotes https://www.bogleheads.org/wiki/Taylor_Larimore's_market_timing_quotes always makes me smile.

Confidence is a nice feeling. Wish I had it in this environment.

Situation reminds me of a concept from an early Econ course - inelastic demand. No matter the context or setting of valuations the demand to stay with the 60/40 portfolio trumps any considerations for capital preservation.
This site does good work demonstrating how unique and extreme valuations are relative to any other time going back 100 years.
https://www.advisorperspectives.com...gression-to-trend-186-above-trend-in-november