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Cash alternatives
Old 11-24-2021, 01:43 PM   #1
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Cash alternatives

Hi, been struggling with this for a long while.

Current excessive valuations have me holding about 70% cash. We have about a third of that in a 401K stable value fund earning around 2-3%.

Vanguard gives their 401K's a similar option called stable value trust...but nothing for IRA accts so we're forced to be in money market fund making .01%.

Appreciate anyone's help about what to do as a alternative to cash to make maybe 1+ percent. Even M1 Financial pays 1% on their checking acct but I'd prefer to stay in Vanguard if possible.

Thanks.
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Old 11-24-2021, 02:17 PM   #2
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I sure hope these "excessive valuations" are low compared to 10 years from now. Or 20. Or longer.

No free lunch today. .5% in an online savings account. Int-Term Treasury Index is what we use. Yes the principal fluctuates in a narrow range. But safe and more return than a money market.
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Old 11-24-2021, 02:28 PM   #3
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I too, get a measly 0.53% ish for my cash. I use Vio Bank because at one time they beat most with something like .65%

I donít keep monstrous amounts there, but am always looking for better.

I remain very dubious of someone like M1 claiming 1% yield. You do know they are $125 a year to get that rate? I wonder if they have a maximum savings amount that 1% applies to. I also wonder about other fees like closing an account. Reviews donít seem too friendly to them...seems a little gimmicky
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Old 11-24-2021, 04:00 PM   #4
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Quote:
Originally Posted by feelthefreedom View Post
... Current excessive valuations have me holding about 70% cash. ...
Reading the quotations here: Taylor Larimore's market timing quotes https://www.bogleheads.org/wiki/Tayl..._timing_quotes always makes me smile.
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Old 11-24-2021, 04:09 PM   #5
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Reading the quotations here: Taylor Larimore's market timing quotes https://www.bogleheads.org/wiki/Tayl..._timing_quotes always makes me smile.
I expected only an idea or two, but instead I got to read 120 wonderful quotes.

Thank you for the timing on this. I am selling some highly appreciated real estate this month and was thinking if I should sit on the sidelines or dollar cost average into Vanguard Total Stock Index Fund, this just reassured me to invest as soon as the cash is available. I am at 52% stock right now and my asset allocation in my plan is 60%. Appreciated real estate skewed me off track a bit and this will get me back on track.
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Old 11-24-2021, 04:16 PM   #6
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We have really cut down on cash.

My perspective is that inflation is running at 4 points. That means that we have to earn 5 points to net 4 after tax, just to break even. This is a mugs game at the moment.

Ten years ago our recommended ratio at retirement was 70 fixed/bonds, 30 percent equity.

Thankfully we punted our replacement bank advisor at that time, moved to another FI, and went with 70 percent equities. Where we are today. The rest is alternatives, bonds, and some income funds. We re-evaluate every six months or so.

But..it depends on how exposed financially one may be exposed to risk.
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Cash alternatives
Old 11-24-2021, 04:23 PM   #7
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Cash alternatives

Lots of interest in I-Bonds these days. But of course there are limits to how much one can hold ($10k per person per year + $5k in paper bonds with a tax refund). I bought a $10k I-bond this month. I-Bonds are illiquid for a year after purchase but afterwards can easily be liquidated for a penalty of 3-months' interest.

The rest of my cash is sitting in a "high yield" savings account at Citibank earning 0.5%.

Not central to your question but stock valuations have been considered "excessive" for many years but the best time to invest is today, not at some future date when you think share prices will be more reasonable. They may or may not be. Just have to take the plunge and stay invested for the long term.
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Old 11-24-2021, 06:22 PM   #8
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We all have to take risks. By trying so hard to avoid risk of loss in equities, OP is making long term losses to inflation a certainty. That's a much worse outcome on average than a balanced portfolio, especially as the time horizon lengthens.

The quotes OldShooter shared are not just pithy sayings, they are wisdom from the greatest investors.
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Old 11-24-2021, 07:10 PM   #9
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Old 11-24-2021, 08:11 PM   #10
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Originally Posted by feelthefreedom View Post
Hi, been struggling with this for a long while.

Current excessive valuations have me holding about 70% cash. We have about a third of that in a 401K stable value fund earning around 2-3%.

Yeah, you figure that big stock crash has to hit one of these days.
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Old 11-24-2021, 08:31 PM   #11
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Yeah, you figure that big stock crash has to hit one of these days.
March 2020 was a great opportunity to jump into the market... I wonder how many fence-sitters actually did. Probably very few.
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Old 11-24-2021, 08:45 PM   #12
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The market will drop. The question is how much it will continue to go up before the drop. Iíve heard people calling for a market crash since the last one. I was in stocks then and rode it out. Iíll ride out the next one too. I do have a cash cushion, but am still heavily into stocks.
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Old 11-24-2021, 08:54 PM   #13
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At 6% inflation you're losing a lot of money in cash even at "1+%". (even at 3, 4 or 5% inflation)
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Old 11-25-2021, 06:20 AM   #14
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Originally Posted by OldShooter View Post
Reading the quotations here: Taylor Larimore's market timing quotes https://www.bogleheads.org/wiki/Tayl..._timing_quotes always makes me smile.
+100

OP - it's really simple. Don't time the market.
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Old 11-25-2021, 07:01 AM   #15
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There is something now called a "vertical checking account". Those are paying 3+% interest right now. Most require one automatic deposit a month, around 12 debit card transactions a month and one or two more hoops to jump through. If you don't hit every requirement each month, I think you miss that month's interest. Just search online for vertical checking account.
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Old 11-25-2021, 07:49 AM   #16
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A recurring thread topic with no good answers for the past few years, but understandable in that cash has never been so out of step with inflation. Like others I’m settling for 0.5% at Ally. I’ve been about to put some of it in a high yield fund, bonds held to duration or whatever else - but haven’t pulled the trigger still. There is no decent return cash alternative that I know of with zero principle risk.
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Old 11-25-2021, 07:51 AM   #17
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You will get many investment suggestions that will be mostly based on a persons age, financial situation, level of debt, whether retired, if there are children for inheritance, level of comfort, investment experience/success, whether they have reached their goals, etc. As usual there many variables. Determine what yours are and seek out those posts whose advice is closest to your situation.
Looks like this has been your first post so you have some thinking to do and some searches to make through older posts.


Cheers!
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Old 11-25-2021, 08:04 AM   #18
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I don’t like the drag of cash though I use a bucket approach. Bucket one is traditionally the cash bucket, but I did it a little different. I built a muni ladder starting about seven years ago when rates were higher. I added to the ladder when muni’s got punched in the face in early 2020. That is my bucket one. Between interest and maturing bonds, I have enough liquidity to fund all our expenses.
The ladder took the place of a pension when we retired in our late 50’s. I have another eight years left on the ladder which takes us into SS. So not much cash, but plenty of cashflow. Bucket two and three remain untouched and have grown substantially.
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Old 11-25-2021, 08:10 AM   #19
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March 2020 was a great opportunity to jump into the market... I wonder how many fence-sitters actually did. Probably very few.
That was extremely short. I only got a few of my tax loss harvesting fund exchanges done.
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Old 11-25-2021, 08:35 AM   #20
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The market will drop. The question is how much it will continue to go up before the drop. Iíve heard people calling for a market crash since the last one. I was in stocks then and rode it out. Iíll ride out the next one too. I do have a cash cushion, but am still heavily into stocks.
Actually, my question is not how much it will continue to go up before the drop, but how long will it be after the drop before it reaches its previous high? If there's a recession or depression early in my retirement, I plan on just reducing my draws and spending only from the cash/bond portion, and I should have enough to hold me over for decades of a comfortable but simple LBYM lifestyle!
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