Options for cash going forward

[Packman]

I'd like to get some of your knowledgeable opinions.

I hold a large amount of cash, about $600,000. I do this because, if the right opportunity arises, I may buy a new home before selling the current one, therefore not having to mess around with a mortgage and the associated fees as well as not having to move twice.

I now have $250k at Ally (max FDIC insured amount - I do not want a joint account) and the rest in MM funds at my broker, which are paying about 40 basis points. I am considering opening another account with a different online bank to get the current 1.5% interest rate. But it's a hassle - more paperwork, emails, etc.

So, the question is - what are the chances the online banks lower their interest rates for a savings accounts to something less than 1%, in which case I may not want to make the change? What other decent options might be available to me?

 

[brewer12345]

The war on savers is on in full force once again, so holding cash is painful. Maybe lock in a rate in a 1 year CD or similar? Worse comes to worst you can simply eat the surrender charge. I have set up a rolling ladder of CDs at Navy Federal that allow additional dump ins (Easy Start certificates) with the goal of having one mature every 3 months. That way I always have a short term instrument available to me at a reasonable rate. So I open a 2 year deal (highest rate) with the minimum ($50) every 3 months. If I need a place to stuff cash short term I put it into the CD I opened 1.75 years ago because I get the high rate for the last 3 months of the guarantee.

 

[pb4uski]

If you're willing to take on a little risk, I like Vanguard Short-Term Federal Fund Admiral Shares (VSGDX)... SEC yield is 1.74%, Distribution yield is 2.03%, negligible credit risk and a smidgeon of interest rate risk (duration is 2.2 years).

For my taxable accounts, I like Vanguard Short-Term Tax-Exempt Fund Admiral Shares (VWSUX)... 1.38% SEC yield, 1.58% distribution yield and a duration of 1.3 years.

 

[Jerry1]

If you're willing to take on a little risk, I like Vanguard Short-Term Federal Fund Admiral Shares (VSGDX)... SEC yield is 1.74%, Distribution yield is 2.03%, negligible credit risk and a smidgeon of interest rate risk (duration is 2.2 years).

For my taxable accounts, I like Vanguard Short-Term Tax-Exempt Fund Admiral Shares (VWSUX)... 1.38% SEC yield, 1.58% distribution yield and a duration of 1.3 years.

I have the same general question as the OP but have given up hope of anything over even one percent. When I read the numbers above for the Vanguard Funds, I’m wondering if there’s anything comparable at Fidelity. More important is how do you evaluate those types of funds going forward? Everything I see is retrospective. Do they publish a prospective yield, similar to a CD, even if not guaranteed?

 

[MRG]

I have the same general question as the OP but have given up hope of anything over even one percent. When I read the numbers above for the Vanguard Funds, I’m wondering if there’s anything comparable at Fidelity. More important is how do you evaluate those types of funds going forward? Everything I see is retrospective. Do they publish a prospective yield, similar to a CD, even if not guaranteed?

Here's a link to similar stocks. They are new to me but I seem to remember another member mentioning the name. There's a number of similar funds and ETF that are correlated to the one in question.

https://similarstocks.com/vanguard-mutual-funds/vsgdx

 

[Sunset]

OP - hopefully you have locked in your rate at ALLY with their no penalty 11 month CD.

Maybe other online banks have similar no-penalty CDs ?

 

[eytonxav]

Here's a link to similar stocks. They are new to me but I seem to remember another member mentioning the name. There's a number of similar funds and ETF that are correlated to the one in question.

https://similarstocks.com/vanguard-mutual-funds/vsgdx

Thats very useful, thank you!

 

[audreyh1]

I'd like to get some of your knowledgeable opinions.

I hold a large amount of cash, about $600,000. I do this because, if the right opportunity arises, I may buy a new home before selling the current one, therefore not having to mess around with a mortgage and the associated fees as well as not having to move twice.

I now have $250k at Ally (max FDIC insured amount - I do not want a joint account) and the rest in MM funds at my broker, which are paying about 40 basis points. I am considering opening another account with a different online bank to get the current 1.5% interest rate. But it's a hassle - more paperwork, emails, etc.

So, the question is - what are the chances the online banks lower their interest rates for a savings accounts to something less than 1%, in which case I may not want to make the change? What other decent options might be available to me?

OK, hope you’ve maxed out the no penalty CDs.

The other high yield savings accounts, yes rates will drop, but they will probably be gradual. And if like last time, perhaps stabilize around 0.7% or somesuch. Still way higher than MM funds.

 

[mrfeh]

I'd go with a CD. I'm expecting online savings rates to drop.

 

[Hyper]

Same here as we've been desperately looking for land to build again and CD maturing soon. The second something acceptable comes available, we're just going to offer full price and be done with it. Really hoping it happens soon!

 

[capjak]

I would open another non penalty CD at Ally under spouses name as you said you do not want a joint account so 1 in your name and 1 in SOs name.

 

[Packman]

If you're willing to take on a little risk, I like Vanguard Short-Term Federal Fund Admiral Shares (VSGDX)... SEC yield is 1.74%, Distribution yield is 2.03%, negligible credit risk and a smidgeon of interest rate risk (duration is 2.2 years).

Thanks to all for the advice. I have decided to buy a short term treasury bond fund (FUMBX) since Fidelity is my broker. I already have a CD ladder, so treasury bonds are a good option for my cash with only a little more risk. I don't seen interest rates going up anytime soon.

 

[clobber]

If you're willing to take on a little risk, I like Vanguard Short-Term Federal Fund Admiral Shares (VSGDX)... SEC yield is 1.74%, Distribution yield is 2.03%, negligible credit risk and a smidgeon of interest rate risk (duration is 2.2 years).

Found this thread for the title (have cash, need yield, need capital preservation) and am just now looking into bonds, bond funds, and bond ETFs. While a have done A LOT of reading, bond funds and ETF still confuse me and I am trying to lock down some specifics.

With all the usual disclaimers, am I correct in saying that if I purchased VSGDX:

1) I could "expect" about 2% dividend return. I think I like this.
2) If I invested ~$100000K, I could "expect" about $166/month paid at the beginning of each month.
3) Since 2002, the price has swung between roughly a little more than $10-$11 (and it currently sits around $11). Therefore, capital appreciation/depreciation could be ~10%. I don't think I like this. Is this the "little risk" pb4uski alluded to?
4) Given that the price has never been above $11, should I not expect depreciation?
4) The .1% expense ratio is low

Am I interpreting all this right? Off to read more

 

[mrfeh]

Found this thread for the title (have cash, need yield, need capital preservation) and am just now looking into bonds, bond funds, and bond ETFs. While a have done A LOT of reading, bond funds and ETF still confuse me and I am trying to lock down some specifics.

With all the usual disclaimers, am I correct in saying that if I purchased VSGDX:

1) I could "expect" about 2% dividend return. I think I like this.
2) If I invested ~$100000K, I could "expect" about $166/month paid at the beginning of each month.
3) Since 2002, the price has swung between roughly a little more than $10-$11 (and it currently sits around $11). Therefore, capital appreciation/depreciation could be ~10%. I don't think I like this. Is this the "little risk" pb4uski alluded to?
4) Given that the price has never been above $11, should I not expect depreciation?
4) The .1% expense ratio is low

Am I interpreting all this right? Off to read more

You've got it. The thing with bond funds is that you don't know how the NAV of the fund will affect total return. It could help, hurt or be neutral.

When rates drop, the NAV goes up. When rates increase, the NAV goes down. FWIW, rates are extremely low right now.

 

[street]

CD's is where I would go.
Holding cash isn't a bad plan at all in my opinion. I guess it depends on what percentage of your portfolio is your cash holding. I play the game holding cash to live on and I have it to invest and don't have to sell my investments to live.

 

[jazz4cash]

I expect the lousy CD rates we are seeing now will look better in 6-9 months if you bite the bullet and buy now. Use a ladder and don’t go out too far.

 

[pb4uski]

... Found this thread for the title (have cash, need yield, need capital preservation) and am just now looking into bonds, bond funds, and bond ETFs. While a have done A LOT of reading, bond funds and ETF still confuse me and I am trying to lock down some specifics.

With all the usual disclaimers, am I correct in saying that if I purchased VSGDX:

1) I could "expect" about 2% dividend return. I think I like this.
2) If I invested ~$100000K, I could "expect" about $166/month paid at the beginning of each month.
3) Since 2002, the price has swung between roughly a little more than $10-$11 (and it currently sits around $11). Therefore, capital appreciation/depreciation could be ~10%. I don't think I like this. Is this the "little risk" pb4uski alluded to?
4) Given that the price has never been above $11, should I not expect depreciation?
4) The .1% expense ratio is low

Am I interpreting all this right? Off to read more

I think 2% is probably a bit optimistic, especially in the long run. One view would be if the portfolio yield to maturity is 1.1% and the ER is 0.1%, then you're talking 1.0% if interest income. OTOH, the current distribution yield is 2.03% and the SEC yield is 1.69%.

Putting any appreciation aside, I see income more likely being closer to 1% than to 2%.

The duration is 2.2 years... so in theory if interest rates increase by 1% the fund value would decrease 2.2% and vice versa. Over the last 5 years the NAV has ranged between $10.47 and $10.97... so the 5 year low is quite a bit higher than $10.

YMMV.

 

[brewer12345]

Lately I have been periodically cruising the very short term fixed income offerings at Schwab. I look out from next week to 6 months from now and find relatively high quality stuff and see what it is yielding. It has been harder sledding as time goes on, but I have generally not had that hard a time beating money market yields by a decent margin. If you are willing to keep an eye out and buy in dribs and drabs, I have been able to buy good quality stuff maturing within 3 to 6 months and keep yield at 1.5% or better in aggregate. You take incrementally more risk than with a money market fund.

 

[Spock]

I have the same general question as the OP but have given up hope of anything over even one percent. When I read the numbers above for the Vanguard Funds, I’m wondering if there’s anything comparable at Fidelity. More important is how do you evaluate those types of funds going forward? Everything I see is retrospective. Do they publish a prospective yield, similar to a CD, even if not guaranteed?

FWIW: Discover Bank has 1.5% 12 and 24 month CDs. 5yrs = a whopping 1.6%.

 

[pb4uski]

Lately I have been periodically cruising the very short term fixed income offerings at Schwab. I look out from next week to 6 months from now and find relatively high quality stuff and see what it is yielding. It has been harder sledding as time goes on, but I have generally not had that hard a time beating money market yields by a decent margin. If you are willing to keep an eye out and buy in dribs and drabs, I have been able to buy good quality stuff maturing within 3 to 6 months and keep yield at 1.5% or better in aggregate. You take incrementally more risk than with a money market fund.

Brewer, is this high quality corporate paper? munis? I get the term is short, but not sure where you are fishing.

 

[brewer12345]

Brewer, is this high quality corporate paper? munis? I get the term is short, but not sure where you are fishing.

Munis seem to have the most attractive opportunities lately. I would guess that I am feeding off retail holders who want to sell small lots to raise cash near maturity.

 

[PatrickA5]

Has anyone looked into multi-year guaranteed annuities? Looks like you can get a Mass Mutual 3 yr for around 2.1% - which is quite a bit better than CD's. Obviously, since they have surrender charges you don't want to use money you'll need. Any concerns?

 

[jazz4cash]

Has anyone looked into multi-year guaranteed annuities? Looks like you can get a Mass Mutual 3 yr for around 2.1% - which is quite a bit better than CD's. Obviously, since they have surrender charges you don't want to use money you'll need. Any concerns?

Yes, I am looking them. At the risk of getting pummeled for even bringing it up, I do have an eye towards MYGA products as CD rates continue to decline. I’m still getting >3% on 2 yr add on CDs but I might need an alternative investment at some point.

 

[PatrickA5]

Really the only difference I can see between a MYGA and a CD is instead of early withdrawal penalties you pay surrender charges. Also, they are issued by insurance companies instead of banks, so no FDIC insurance. Mass Mutual has a jumbo ($100,000) paying 2.1% What's the downside?

 

[jazz4cash]

The surrender charge is more severe if there is any chance you’ll need the funds, but usually you can withdraw some annually with no penalty. I think some also use MVA to ding you if you exceed the free withdrawal.