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09-19-2009, 06:58 AM
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#1
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Full time employment: Posting here.
Join Date: Feb 2008
Posts: 920
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Where is your cash?
When the market was way way down I couldn't resist moving some of my x years living expenses I've been building up into equities (it was split three ways among S&P500 Index, Small Cap Index, and Intl Stock Index) to ride the hopefully inevitable rise and grab some gains. This is all in taxable account.
I know, dirty market timer etc. but we're still in accumulation phase and still both working so I figured I had some flexibility here during the slow march towards my cash allocation for retirement.
Anyway, that move obviously worked out pretty well but I'm feeling it's time to move that back where it should be, but everything kinda sucks right now for cash. The cash pile has been building up in a money market fund but that's crap right now for interest, CD rates are crap, bleh.
So what do you guys and gals do for cash right now, at least the ones who aren't still riding 5% CDs? Are you just going with MMs and CDs and figuring low inflation makes it a wash? Short term bond funds? TIPs fund?
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09-19-2009, 07:13 AM
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#2
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2005
Posts: 10,252
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We are in the accumulation phase and have no need for the safety of cash. Hence we use bond funds for fixed income, but tend to the shorter duration types. In our IRAs (where we have a choice) we use the Vanguard short-term investment grade and Vanguard GNMA funds. These are the only Vanguard bond funds we own.
Some folks don't like either of these because the former is not Treasuries and thus riskier, while the latter has extra risk because of pre-payment and negative convexity (or something like that). We have held both funds for quite a while and are comfortable with their volatility and risks.
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09-19-2009, 07:36 AM
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#3
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Full time employment: Posting here.
Join Date: Feb 2008
Posts: 920
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Thanks for the reply LOL, and that brings an interest side discussion... is it stupid to start building up our needed requirement cash now?
I always figured I'd do it slowly, but is it wiser to just stay in a more aggressive stance until one morning when we're going to retire the next day, then move a huge pile of it into x years living expenses of cash?
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09-19-2009, 07:48 AM
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#4
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Thinks s/he gets paid by the post
Join Date: Oct 2008
Location: Naples
Posts: 2,179
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Our situations are different as we are not in the accumulation game any longer. What we have has to last the rest of our lives so everything is in CD's and MM. Our CD's are at 4.5% and have three years to go at this rate. I can live with that as I think rates wil be back up by the time these CD's mature. What I don't like is the
$175K we have in MM getting crap (1.55%). I'd sure like to find a decent CD that I don't have to tie up for five years. We might have to stay the course because at our age, our number one concern is safety that's why we have to stick with FDIC covered issues.
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09-19-2009, 07:57 AM
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#5
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 38,153
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Well I confess. With the miserable rates in cash I have put some of my cash into a fund I normally wouldn't - a Ginnie Mae bond fund - FGMNX. At least until cash rates "normalize" back to 2% or higher.
Johnnie - a lot of MMs are paying way less that 1%, 1.55% is actually a great rate for MM.
Audrey
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09-19-2009, 08:38 AM
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#6
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 50,022
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Quote:
Originally Posted by audreyh1
Well I confess. With the miserable rates in cash I have put some of my cash into a fund I normally wouldn't - a Ginnie Mae bond fund - FGMNX. At least until cash rates "normalize" back to 2% or higher.
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Same here. I put 1/3 of my cash in VFIIX and another 1/3 in VBISX. I plan to move all of it back to a Mmkt fund once interest rates become more reasonable.
__________________
Numbers is hard
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09-19-2009, 08:44 AM
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#7
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Full time employment: Posting here.
Join Date: Feb 2008
Posts: 920
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Quote:
Originally Posted by audreyh1
1.55% is actually a great rate for MM.
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I was thinking the same thing when I read that. Isn't it funny sitting in here drooling enviously at this 1.55% Money Market Fund? Who'd thunk it?
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09-19-2009, 08:50 AM
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#8
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Thinks s/he gets paid by the post
Join Date: Jul 2002
Posts: 1,587
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Yeh, my MM are down next to zero return right now. I've moved some cash into Vanguard Short Term Bond Fund as a temporary measure and some cash into GE Interest Plus notes paying about 2%.
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Only works if you're in Federal civil service retirement plan...
09-19-2009, 09:04 AM
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#9
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Dec 2008
Posts: 12,660
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Only works if you're in Federal civil service retirement plan...
I just moved a chunk of cash into a CSRS Voluntary Contribution account paying, I think, 3.7% and change, tax-deferred.
In 2010 I plan to roll this account into a Roth IRA; the interest will go to the Thrift Savings Plan (TSP).
__________________
If you understood everything I say, you'd be me ~ Miles Davis
'There is only one success – to be able to spend your life in your own way.’ Christopher Morley.
Even a blind clock finds an acorn twice a day.
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09-19-2009, 09:08 AM
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#10
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Thinks s/he gets paid by the post
Join Date: Jul 2009
Location: Austin
Posts: 1,142
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Glad to see this question. It prompted me to actually have a look at yields and durations of the Vanguard funds one might use for "cash". Of course, bond funds other than a money market are subject to NAV loss when interest rates rise. Since short term rates are essentially controlled by the FED, the question is: What would happen to your "cash" when the FED decides to raise rates? There probably is a practical upper limit to how fast the FED can raise rates without wrecking the banking system. I don't know that that is, but worst case, maybe as much as 1% per quarterly meeting?
Here is a table of Vanguard funds that one might consider for one's "cash". The right two columns show the quarterly return in the event of a 1% and 0.5% rate hike. These returns are based on assuming that the NAV declines by an amount equal to the Duration for each percent increase in FED rates. I included the Avg. Maturity just to remind folks that Duration and Maturity are not the same thing. The table is sorted according the the 0.5% hike scenario. Note that the order is not the same for the 1% hike.
This seems to indicate that GNMAs might be a reasonable substitute for a money fund. Have I missed something? I know hardly anything about GNMAs.
I am happy to post the spreadsheet if anyone wants it.
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09-19-2009, 09:08 AM
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#11
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2005
Posts: 10,252
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Quote:
Originally Posted by tiuxiu
Thanks for the reply LOL, and that brings an interest side discussion... is it stupid to start building up our needed requirement cash now?
I always figured I'd do it slowly, but is it wiser to just stay in a more aggressive stance until one morning when we're going to retire the next day, then move a huge pile of it into x years living expenses of cash?
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I don't know. I looked pretty stupid watching my VFSUX drop 10% last year (it has since recovered). Some folks advocate always having at least 2 years of expenses in cash. I guess that would include your emergency fund. I imagine that when money markets and CDs are paying well, then everybody likes cash. Conversely, when cash isn't pay well, folks don't like it.
In any event, I think it's a good idea to avoid long-term bond funds and stick to short duration funds. If you look inside some actively-managed bond funds like PIMCO Total Return, you will see they have shortened up maturities and hold quite a bit of cash.
Just remember, if you want a higher dividend rate, then you will have to accept some risk. Maybe it's not worth it?
BTW, this question is asked at least once a day over on the Bogleheads forum. There are some folks there who like GNMAs and some folks there who don't like them. Here is a classic discussion on GNMAs: http://www.bogleheads.org/forum/viewtopic.php?t=37057 And here is a discussion on chasing yields: http://www.bogleheads.org/forum/viewtopic.php?t=40988
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09-19-2009, 09:09 AM
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#12
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Thinks s/he gets paid by the post
Join Date: Jul 2004
Posts: 1,321
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I recently moved almost all of my cash from Vanguard MM Prime to Discover Savings Bank - paying 2% interest.
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09-19-2009, 09:11 AM
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#13
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Full time employment: Posting here.
Join Date: Jun 2009
Location: SoCal
Posts: 569
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Its split between Vanguard's MMF and CA tax-exempt MMF. Both are returning next to nothing. I am also still in the accumulation phase so in the near future I will be adding the short-term investment grade fund into the mix as well.
I am still thinking about laddering some CDs but the thought of locking into 1-2%...seems like it may be better to wait until returns on MMF start to creep up a bit.
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09-19-2009, 09:21 AM
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#14
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Moderator Emeritus
Join Date: May 2007
Posts: 12,901
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I have very little cash right now sitting in savings accounts or money market funds. I moved that money into bond funds last year. I use Vanguard GNMA in our IRAs, Vanguard short term tax exempt and Vanguard intermediate tax exempt in our taxable account and PIMCO total return in our 401K.
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09-19-2009, 10:08 AM
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#15
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Thinks s/he gets paid by the post
Join Date: Jul 2006
Location: Denver
Posts: 3,519
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Tiuxiu,
Right through my accumulation phase, I used the Vanguard Short Term Investment Grade fund for the bond portion of my 80% equity / 20% bond portolio. I probably had about 3 months cash handy at most times in a MMF.
As for building your cash cushion, as you get to about 5 years from your retirement, you could start putting new money towards your cash allocation. At that point, you may be thinking of a more conservative asset allocation anyway.
Currently, I keep 1 year in cash (MMF) and a big chunk of my bond portion (now, 60/40) in the vanguard ST investment grade fund. I find that works for me. As someone else pointed out, it lost 10% at one point last year, but has recovered nicely.
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09-19-2009, 10:53 AM
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#16
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Apr 2004
Location: South Texas~29N/98W Just West of Woman Hollering Creek
Posts: 6,674
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I have always kept 1/2 in a MMF and 1/2 in Vanguard ST Bond fund. Seems like an idiot proof way to meet my goals for liquidity and return. It's never been a real money-maker, not supposed to be, but I can get my mitts on it PDQ.
__________________
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.
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09-19-2009, 11:04 AM
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#17
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Thinks s/he gets paid by the post
Join Date: Jul 2009
Location: Austin
Posts: 1,142
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I'm gonna be rude and quote my own message here, because I think it helps to see all the data in one place. I added a chart of the Prime MMF and the "two best" alternatives to show how they weathered the crisis.
mmf.gif
Quote:
Originally Posted by IndependentlyPoor
Glad to see this question. It prompted me to actually have a look at yields and durations of the Vanguard funds one might use for "cash". Of course, bond funds other than a money market are subject to NAV loss when interest rates rise. Since short term rates are essentially controlled by the FED, the question is: What would happen to your "cash" when the FED decides to raise rates? There probably is a practical upper limit to how fast the FED can raise rates without wrecking the banking system. I don't know that that is, but worst case, maybe as much as 1% per quarterly meeting?
Here is a table of Vanguard funds that one might consider for one's "cash". The right two columns show the quarterly return in the event of a 1% and 0.5% rate hike. These returns are based on assuming that the NAV declines by an amount equal to the Duration for each percent increase in FED rates. I included the Avg. Maturity just to remind folks that Duration and Maturity are not the same thing. The table is sorted according the the 0.5% hike scenario. Note that the order is not the same for the 1% hike.
This seems to indicate that GNMAs might be a reasonable substitute for a money fund. Have I missed something? I know hardly anything about GNMAs.
I am happy to post the spreadsheet if anyone wants it.
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Am I going to swap some MMF to GNMA? Dunno. Could some of the GNMA price increase be due to crisis market distortion that wvanishes (right after I commit)?
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09-19-2009, 12:08 PM
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#18
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Recycles dryer sheets
Join Date: Oct 2005
Posts: 325
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Not exactly a traditional approach but lately I've been moving my cash to real estate investments since they are so cheap and been getting from 15 - 20%. Know there is work in fixing up the properties and managing them, but I've been blessed with a someone who can find and manage an inexpensive crew so only the cash management and collecting rents are left up to me. The rest of my cash is sitting in the MM account at EverBank, which I'm sure is what your looking to do.
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09-19-2009, 12:25 PM
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#19
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Administrator
Join Date: Jul 2005
Location: N. Yorkshire
Posts: 34,130
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I have my cash in Penfed CD's at 5%, Bank of Internet savings at 1.75% and VG short term bond fund at 1.71%. Very hard to find decent yields at present.
__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Enough private pension and SS income to cover all needs
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09-19-2009, 12:59 PM
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#20
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Feb 2005
Location: Central MS/Orange Beach, AL
Posts: 9,072
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Some in a MM yielding basically nothing, a short term bond fund and of course CD's.
__________________
Retired 3/31/2007@52
Investing style: Full time wuss.
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