Good short-term investment options

[Montecfo]

I think of online savings accounts as a different category than savings accounts.

When I see "savings account" I think of more conventional savings accounts which comprise most bank savings accounts and currently pay the same pathetic interest rates as the CDs and money market funds that you mentioned.

"Online" savings accounts are savings accounts.

I point that out since I referred to savings accounts above.

 

[retired1]

Online Savings like Ally is good place for short term cash. Paying 1% i think which is better than 1 yr CD at most brick/mortar banks.

 

[sengsational]

+1 and on top of that, most here don't consider their home to be part of their investment portfolio, so to sell a home and then "replace' it with a REIT is a bit odd IMO.

The reality for most of us is that one's house makes up a good fraction of the "hard assets" portion of our asset allocation. One may have set asset allocation targets that apply to liquid assets for the purpose of rebalancing, but an asset is an asset, liquid or not. So even though a person might have what they call a 60/40 allocation, I contend that if they have a 1M portfolio and a 0.5M house, they have a 40/27/33, with the last percentage being hard assets. This is true whether they feel they will never sell the house, sell it tomorrow and rebuy, or sell and never rebuy. While I understand the desire to have the same number of dollars when it comes time to rebuy (what is being called stability), the same number of dollars may not yield the same utility when spent in the future housing market. It may yield more utility if housing prices decline, and less utility if the housing market heats up. The most stability would be offered if there were a product that tracked the housing market in the geography of the future purchase.

 

[pb4uski]

"Online" savings accounts are savings accounts.

I point that out since I referred to savings accounts above.

While technically you are right, I guess that it depends on how broadly you are thinking.

When you have ~10,000 banks and credit unions with savings account yields on the 0.01%-0.19% range and a few dozen online banks with savings account yields in the 0.80-1.2% range then I think of the online banks as a horse of a different color.... and different enough to be specific when talking about savings account yields.

 

[pb4uski]

The reality for most of us is that one's house makes up a good fraction of the "hard assets" portion of our asset allocation. One may have set asset allocation targets that apply to liquid assets for the purpose of rebalancing, but an asset is an asset, liquid or not. So even though a person might have what they call a 60/40 allocation, I contend that if they have a 1M portfolio and a 0.5M house, they have a 40/27/33, with the last percentage being hard assets. This is true whether they feel they will never sell the house, sell it tomorrow and rebuy, or sell and never rebuy. While I understand the desire to have the same number of dollars when it comes time to rebuy (what is being called stability), the same number of dollars may not yield the same utility when spent in the future housing market. It may yield more utility if housing prices decline, and less utility if the housing market heats up. The most stability would be offered if there were a product that tracked the housing market in the geography of the future purchase.

Well, that is a unique view in my experience on this forum.

We frequently advise posters who include home equity in their "portfolio" not to do so unless they plan to downsize their housing... and often suggest that a home is a place that you live in rather than an investment.

And in all the time that I have been here, I've never seen anyone suggest a hard asset category in addition to stocks, bonds/fixed income and sometimes cash, in looking at AA.

I just don't agree.

 

[OldShooter]

... I contend that if they have a 1M portfolio and a 0.5M house, they have a 40/27/33, with the last percentage being hard assets.

Nothing wrong with that for you. "When I use a word," Humpty Dumpty said [to Alice], in rather a scornful tone, "it means just what I choose it to mean—neither more nor less."

I think there are very few people who have that view however. For example, our houses comprise about 20% of our net worth but I ignore them when thinking about investments.

... The most stability would be offered if there were a product that tracked the housing market in the geography of the future purchase.

Certainly. Good luck with that.

 

[sengsational]

I'm happy to have less conventional (nutty?) views on this, and other topics. I don't mind being wrong. I'm probably also "out there" on my view that annuities (pensions, SS, etc) should be part of the asset allocation equation. If you take either of these to the extreme, it becomes apparent, at least to me, that pushing them aside causes issues. The guy who has no portfolio, but lives off a HELOC on his 2M house. Or the guy who has no portfolio, but is living like a king off his lottery annuity. But I digress. The OP wants the same number of dollars, maybe a few more, but certainly not any less, when it comes time to repurchase housing, irrespective of what the housing market does. I get it. It's the standard approach and one I would also probably take, given the smack I'd give myself if the market went against me.

 

[target2019]

I'm happy to have less conventional (nutty?) views on this, and other topics. I don't mind being wrong. I'm probably also "out there" on my view that annuities (pensions, SS, etc) should be part of the asset allocation equation. If you take either of these to the extreme, it becomes apparent, at least to me, that pushing them aside causes issues. The guy who has no portfolio, but lives off a HELOC on his 2M house. Or the guy who has no portfolio, but is living like a king off his lottery annuity. But I digress. The OP wants the same number of dollars, maybe a few more, but certainly not any less, when it comes time to repurchase housing, irrespective of what the housing market does. I get it. It's the standard approach and one I would also probably take, given the smack I'd give myself if the market went against me.

Out-of-the-box thinking is fine with me. Where it gets hairy is if you include the home value in your total investments, it doesn't produce income, and your estimate of future income is off.

I include pension survivor benefit in asset allocation, but do not include it in income. It allowed us to go a bit more risk.

Since Bogle mentioned SS lifetime payout as part of bond allocation, I know I'm not too far off the sanity scale, and neither are you. But for argument, let's say you include Pension + SS + Home as part of fixed income allocation, you're increasing equity to a greater extent than you'd like (IMO).

So I've been ok with including pension, but wouldn't add home equity on top of that as AA would go riskier than we'd like at this time.

 

[sengsational]

I see what you're getting at with respect to setting an expected return on assets if your assets include the house. That's a problem, and it would produce an invalid result unless it was compensated for.

It seems to me a lot of the rules, conventions, practices, what we've done over earlier decades had a good bit of "shortcut" logic in them. In other words, it would be hard to model X, so rather than take that trouble to carefully measure all of those inputs and make estimates for a bunch of assumptions, let's just agree, for the purposes of simplicity and uniformity, to do it this way. But if you really wanted to model things, with as many of the details that could be modeled, one could do that. But then you have 87 different models with 473 different assumptions and you can no longer compare any two, hehe!

 

[OldShooter]

... It seems to me a lot of the rules, conventions, practices, what we've done over earlier decades had a good bit of "shortcut" logic in them. In other words, it would be hard to model X, so rather than take that trouble to carefully measure all of those inputs and make estimates for a bunch of assumptions, let's just agree, for the purposes of simplicity and uniformity, to do it this way. But if you really wanted to model things, with as many of the details that could be modeled, one could do that. But then you have 87 different models with 473 different assumptions and you can no longer compare any two, hehe!

Well, and none of the 87 can predict the future anyway. In my view all these models and rules of thumb are useful for brief looks as sanity checks and that's about it. Investment returns and spending will change in the future in unpredictable ways. The key to the future is flexibility, not genuflecting to some historical data of unknown quality crunched in some unknown way by someone of unknown competence.

 

[Sunset]

There are a lot of math challenged folks in the world, so not including the house value makes it simple and less likely they will withdraw the "wrong" 4% of assets and run out of money.

 

[pb4uski]

There are a lot of math challenged folks in the world, so not including the house value makes it simple and less likely they will withdraw the "wrong" 4% of assets and run out of money.

Agree on the first part, but the second part seems to be more of a rationalization.

It just doesn't make sense to include house value in income producing assets that will be used to support retirement (unless one plans to sell and rent or downsize)... the "income" or benefit produced by house value is the exclusion of mortgage interest/mortgage payments or a portion of rent from spending.

 

[walkinwood]

Short-term investment ...isn't that an oxymoron?

 

[sengsational]

Well, and none of the 87 can predict the future anyway.

True. But often that means presuming a model input is zero, or will remain the same as today. It's stochastic. Zero is just as arbitrary as 0.1, and 0.1 might have a slightly higher expected value. What's that quote? All models are wrong, some are useful?

 

[target2019]

Short-term investment ...isn't that an oxymoron?

Short term is the new long term.
?

 

[brewer12345]

I have about given up looking to scrape value out of the bond markets. Credit risk is paying nothing in the short and (increasingly) the long term. So I just set up yet another transfer of cast to be dumped into my add-on CDs at the credit union. When I run out of running room there in 18 months or so, I will be seriously considering just killing off the mortgage early with the cash.

 

[USGrant1962]

Or VUBFX which has less volatility in its price.

If OP is looking at ultra-short bonds, the Admiral shares are cheaper: VUSFX.

I have a bunch of money sitting there right now until I make heads or tails of the bond market, Covid economy, and election.

 

[pb4uski]

I have about given up looking to scrape value out of the bond markets. Credit risk is paying nothing in the short and (increasingly) the long term. So I just set up yet another transfer of cast to be dumped into my add-on CDs at the credit union. When I run out of running room there in 18 months or so, I will be seriously considering just killing off the mortgage early with the cash.

Yeah, I'm scraping the bottom of the barrel too. We killed the 3.375% mortgage and a 1.9% small car loan in late 2019 with cash that was earning 1.7%.

We have his and her 1-year 1.35% add-on CDs at NFCU that we'll transfer our Capital One online savings to once we get the 1% bonus they were offering for 3 months deposit.

I got about $20k in my IRA from a preferred stock call that I need to figure out what to do with but the pickings are slim.