Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
cash equivalent
Old 01-31-2018, 10:18 AM   #1
Recycles dryer sheets
 
Join Date: Jun 2008
Posts: 100
cash equivalent

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.
__________________

hotwired is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 01-31-2018, 10:38 AM   #2
Thinks s/he gets paid by the post
 
Join Date: Dec 2014
Posts: 2,420
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.
__________________

bingybear is offline   Reply With Quote
ST vs cash
Old 01-31-2018, 10:45 AM   #3
Recycles dryer sheets
 
Join Date: Jun 2008
Posts: 100
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.
hotwired is offline   Reply With Quote
Old 01-31-2018, 11:05 AM   #4
Thinks s/he gets paid by the post
OldShooter's Avatar
 
Join Date: Mar 2017
Location: City
Posts: 4,061
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.
OldShooter is offline   Reply With Quote
Old 01-31-2018, 11:10 AM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,969
Quote:
Originally Posted by hotwired View Post
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.
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
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 01-31-2018, 11:50 AM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 24,712
Quote:
Originally Posted by hotwired View Post
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.
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.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...target 65/35/0 AA
pb4uski is offline   Reply With Quote
rethinking
Old 01-31-2018, 11:54 AM   #7
Recycles dryer sheets
 
Join Date: Jun 2008
Posts: 100
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.)
hotwired is offline   Reply With Quote
Old 01-31-2018, 12:09 PM   #8
Dryer sheet wannabe
 
Join Date: Aug 2017
Posts: 11
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.
OUTLAW is offline   Reply With Quote
Old 01-31-2018, 12:19 PM   #9
Recycles dryer sheets
 
Join Date: May 2015
Location: Charleston, SC
Posts: 212
Quote:
Originally Posted by haha View Post
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
What's Fido's symbol for this one ?? They have a veritable Alphabet Souffle -- SPRXX or SPAXX or FZCXX ??
__________________
"He has all of the virtues I dislike and none of the vices I admire." -- Sir Winston Churchill
FiveDriver is offline   Reply With Quote
Old 01-31-2018, 12:25 PM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2006
Posts: 11,401
Can you spend it within 90 days? If so, it is a cash equivalent. Otherwise, it does not meet the criterion.

https://en.m.wikipedia.org/wiki/Cash...sh_equivalents
Meadbh is offline   Reply With Quote
Old 01-31-2018, 12:30 PM   #11
Dryer sheet wannabe
 
Join Date: Aug 2017
Posts: 11
Quote:
Originally Posted by fivedriver View Post
what's fido's symbol for this one ?? They have a veritable alphabet souffle -- sprxx or spaxx or fzcxx ??
Best guess - FDRXX
OUTLAW is offline   Reply With Quote
Old 01-31-2018, 12:42 PM   #12
Recycles dryer sheets
 
Join Date: May 2015
Location: Charleston, SC
Posts: 212
This is what makes these things so hard to track......M* shows nothing like .97% for fdrxx.
__________________
"He has all of the virtues I dislike and none of the vices I admire." -- Sir Winston Churchill
FiveDriver is offline   Reply With Quote
Old 01-31-2018, 12:47 PM   #13
Dryer sheet wannabe
 
Join Date: Aug 2017
Posts: 11
Quote:
Originally Posted by FiveDriver View Post
This is what makes these things so hard to track......M* shows nothing like .97% for fdrxx.
I think FZCXX is what you're really looking for - but it has a $100,000 minimum investment.
OUTLAW is offline   Reply With Quote
Old 01-31-2018, 12:53 PM   #14
Thinks s/he gets paid by the post
USGrant1962's Avatar
 
Join Date: Dec 2016
Location: DC area
Posts: 1,072
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.
__________________
FI and Semi-ER March 24, 2017
Consulting to stay engaged

"All models are wrong, some are useful." - George Box
USGrant1962 is online now   Reply With Quote
Old 01-31-2018, 01:20 PM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,969
Quote:
Originally Posted by fivedriver View Post
what's fido's symbol for this one ?? They have a veritable alphabet souffle -- sprxx or spaxx or fzcxx ??
spaxx
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 01-31-2018, 01:38 PM   #16
Recycles dryer sheets
nvestysly's Avatar
 
Join Date: Feb 2007
Posts: 499
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...res_ibonds.htm
Attached Images
File Type: png Capture.PNG (38.7 KB, 22 views)
File Type: png Capture3.PNG (50.1 KB, 22 views)
__________________
Dreamin' of Streamin'
FIRE'd at 52 on 7/8/11
nvestysly is online now   Reply With Quote
Old 01-31-2018, 04:55 PM   #17
Thinks s/he gets paid by the post
USGrant1962's Avatar
 
Join Date: Dec 2016
Location: DC area
Posts: 1,072
Quote:
Originally Posted by nvestysly View Post
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...res_ibonds.htm
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.
__________________
FI and Semi-ER March 24, 2017
Consulting to stay engaged

"All models are wrong, some are useful." - George Box
USGrant1962 is online now   Reply With Quote
Old 01-31-2018, 06:16 PM   #18
Full time employment: Posting here.
racy's Avatar
 
Join Date: May 2007
Posts: 617
Quote:
Originally Posted by hotwired View Post
.... 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?....
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".
__________________
The Big Lebowski: Are you employed, sir?
The Dude: Employed?
racy is offline   Reply With Quote
Old 01-31-2018, 06:35 PM   #19
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
mickeyd's Avatar
 
Join Date: Apr 2004
Location: South Texas~29N/98W Just West of Woman Hollering Creek
Posts: 6,305
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.
__________________
Part-Owner of Texas

Outside of a dog, a book is man's best friend. Inside of a dog, it's too dark to read. Groucho Marx

In dire need of: faster horses, younger woman, older whiskey, more money.
mickeyd is offline   Reply With Quote
Old 01-31-2018, 08:59 PM   #20
Thinks s/he gets paid by the post
 
Join Date: Jan 2013
Posts: 2,316
Quote:
Originally Posted by haha View Post
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
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.
__________________

Another Reader is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Equivalent Wellesley Fund ferco Stock Picking and Market Strategy 11 06-06-2009 10:08 PM
Foreign/Global Equivalent of Wellesley/Wellington? ejman FIRE and Money 0 08-01-2008 10:59 PM
CPI and Equivalent Rents audreyh1 FIRE and Money 0 06-14-2006 09:05 AM
Calculator For Flat Tax Equivalent Tommy_Dolitte Young Dreamers 1 08-29-2004 10:55 AM
UK equivalent site M f Hi, I am... 1 06-14-2003 12:16 PM

» Quick Links

 
All times are GMT -6. The time now is 05:17 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2020, vBulletin Solutions, Inc.
×