Author Topic: I'd like opinions on our cash position  (Read 1750 times)

Mr. Green

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I'd like opinions on our cash position
« on: September 02, 2020, 03:10:54 PM »
We FIREd a couple years ago and have ~575k in taxable accounts as of this writing, split roughly 80% stocks/20% cash. At one point we were 100% stocks in taxable accounts but we thought we might buy a house in the immediate future. Then this past Spring we learned we can't get a mortgage without income and we're too young for banks to consider the size of our stash for an asset drawdown program.

We're now significantly less certain that we'll buy a house at all in the next 24 months. I think it's maybe 50/50 at best. We have ~110k in Vanguard money market funds, earning literally nothing. That's on top of ~24k in our checking account earning nothing, and ~14k in an online savings account earning 0.75%. I've been wondering if we shouldn't move our cash at Vanguard back into bonds to keep it from eroding value. The only risk I can see is that another big crash occurs, where bonds drop along side stocks. However, if this were to happen we likely won't have enough taxable money to pay cash for a house anyway. 150k of our taxable money is needed to see us through the Roth IRA conversion pipline process.

I'm struggling to come up with other downsides. If bonds go down because stocks make another big bull run, we don't care because we're up big overall, and still able to buy a house. Thoughts?

LWYRUP

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Re: I'd like opinions on our cash position
« Reply #1 on: September 02, 2020, 03:15:10 PM »
Bonds fluctuate, but a safe bond fund like VBTLX I would not expect to crash.  If you are comfortable with something like 5% market declines being just noise and part of life, I would use the bond fund rather than cash.  Bond yields are really low right now so don't expect magic, but they can be a nice diversifier.  IBonds are another option.

I have linked checking and saving and usually don't keep checking much above $2-5k, so there's another $10k of return you could scoop up easily by just shifting more from checking to savings. 

Christof

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Re: I'd like opinions on our cash position
« Reply #2 on: September 02, 2020, 03:30:37 PM »
Too young at 36, wow... To me the question would be: Would I be willing to wait a few years before buying a house in the unlikely event that I couldn’t generate enough cash due to unexpected circumstances?

575k without owning property, though, is a little bit on the low side for my liking. It is possible, but does require some flexibility.

Mr. Green

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Re: I'd like opinions on our cash position
« Reply #3 on: September 02, 2020, 04:12:50 PM »
Too young at 36, wow... To me the question would be: Would I be willing to wait a few years before buying a house in the unlikely event that I couldn’t generate enough cash due to unexpected circumstances?

575k without owning property, though, is a little bit on the low side for my liking. It is possible, but does require some flexibility.
We own two properties but we no longer live in that state. We could certainly move back there in a worst case scenario. We're long time East Coasters but are considering a move to the Rockies next summer after our off-season rental ends on the Outer Banks.

Mr. Green

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Re: I'd like opinions on our cash position
« Reply #4 on: September 02, 2020, 04:15:12 PM »
Bonds fluctuate, but a safe bond fund like VBTLX I would not expect to crash.  If you are comfortable with something like 5% market declines being just noise and part of life, I would use the bond fund rather than cash.  Bond yields are really low right now so don't expect magic, but they can be a nice diversifier.  IBonds are another option.

I have linked checking and saving and usually don't keep checking much above $2-5k, so there's another $10k of return you could scoop up easily by just shifting more from checking to savings.
Definitely forgot about I-bonds. I'm sure they're paying very little right now too but it beats zero, which is what money markets are down to.

LWYRUP

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Re: I'd like opinions on our cash position
« Reply #5 on: September 02, 2020, 04:19:26 PM »
Bonds fluctuate, but a safe bond fund like VBTLX I would not expect to crash.  If you are comfortable with something like 5% market declines being just noise and part of life, I would use the bond fund rather than cash.  Bond yields are really low right now so don't expect magic, but they can be a nice diversifier.  IBonds are another option.

I have linked checking and saving and usually don't keep checking much above $2-5k, so there's another $10k of return you could scoop up easily by just shifting more from checking to savings.
Definitely forgot about I-bonds. I'm sure they're paying very little right now too but it beats zero, which is what money markets are down to.

Currently 1.06%.  So not great.  Less than the SEC yield of Vanguard Total Bond.  But they never go down, that percent will go up if inflation goes up, and you can defer taxes on them. 

I picked up some with a fixed yield of 0.5% and some more with a yield of 0.2% but am not going to bother with zero fixed yield.  But I'll hold on to those 0.5% ones for a while I bet, as 1.56% is actually pretty good for risk free right now.  Crazy times. 

Sometimes these markets feel so screwed up I wonder if buying physical possessions as a store of value isn't actually a crazy idea.  I'm sure a good used bike has held it's value over the last few years, for example. 

Mr. Green

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Re: I'd like opinions on our cash position
« Reply #6 on: September 02, 2020, 04:33:42 PM »
Bonds fluctuate, but a safe bond fund like VBTLX I would not expect to crash.  If you are comfortable with something like 5% market declines being just noise and part of life, I would use the bond fund rather than cash.  Bond yields are really low right now so don't expect magic, but they can be a nice diversifier.  IBonds are another option.

I have linked checking and saving and usually don't keep checking much above $2-5k, so there's another $10k of return you could scoop up easily by just shifting more from checking to savings.
Definitely forgot about I-bonds. I'm sure they're paying very little right now too but it beats zero, which is what money markets are down to.

Currently 1.06%.  So not great.  Less than the SEC yield of Vanguard Total Bond.  But they never go down, that percent will go up if inflation goes up, and you can defer taxes on them. 

I picked up some with a fixed yield of 0.5% and some more with a yield of 0.2% but am not going to bother with zero fixed yield.  But I'll hold on to those 0.5% ones for a while I bet, as 1.56% is actually pretty good for risk free right now.  Crazy times. 

Sometimes these markets feel so screwed up I wonder if buying physical possessions as a store of value isn't actually a crazy idea.  I'm sure a good used bike has held it's value over the last few years, for example.
It will not surprise me if the Fed has to hold rates at zero for quite some time. In that case I'd expect online savings rates to come down further. I'm just not sure I want a hundred grand getting eaten by inflation for several years because we might buy a house but don't.

I remember at some point someone said you'd have done pretty good if you bought Forever stamps. I wonder if that still holds up.

LWYRUP

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Re: I'd like opinions on our cash position
« Reply #7 on: September 02, 2020, 04:37:04 PM »
Bonds fluctuate, but a safe bond fund like VBTLX I would not expect to crash.  If you are comfortable with something like 5% market declines being just noise and part of life, I would use the bond fund rather than cash.  Bond yields are really low right now so don't expect magic, but they can be a nice diversifier.  IBonds are another option.

I have linked checking and saving and usually don't keep checking much above $2-5k, so there's another $10k of return you could scoop up easily by just shifting more from checking to savings.
Definitely forgot about I-bonds. I'm sure they're paying very little right now too but it beats zero, which is what money markets are down to.

Currently 1.06%.  So not great.  Less than the SEC yield of Vanguard Total Bond.  But they never go down, that percent will go up if inflation goes up, and you can defer taxes on them. 

I picked up some with a fixed yield of 0.5% and some more with a yield of 0.2% but am not going to bother with zero fixed yield.  But I'll hold on to those 0.5% ones for a while I bet, as 1.56% is actually pretty good for risk free right now.  Crazy times. 

Sometimes these markets feel so screwed up I wonder if buying physical possessions as a store of value isn't actually a crazy idea.  I'm sure a good used bike has held it's value over the last few years, for example.
It will not surprise me if the Fed has to hold rates at zero for quite some time. In that case I'd expect online savings rates to come down further. I'm just not sure I want a hundred grand getting eaten by inflation for several years because we might buy a house but don't.

I remember at some point someone said you'd have done pretty good if you bought Forever stamps. I wonder if that still holds up.

LOL, last time we got stamps I got a bunch, like $50 worth, partly for that reason.  Not willing to really do that at scale because of risk of fire, resale, etc. but an interesting idea. 

Steeze

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Re: I'd like opinions on our cash position
« Reply #8 on: September 02, 2020, 05:16:51 PM »
A guy I know has a couple large storage lockers full of limited edition Nike SB shoes. Think he is making a healthy return. Just an idea.

EscapeVelocity2020

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Re: I'd like opinions on our cash position
« Reply #9 on: September 02, 2020, 10:51:50 PM »
Do you have access to a 'stable value fund'?  Not bad these days, if you are risk averse but not investing in bonds...  I personally don't mind cash either though, depending on how much the things you need to buy in the future are inflating...  We have the cars and the house we need, so it's just groceries and gas for the most part.  Most other things are discretionary or have substitutions.

MustacheAndaHalf

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Re: I'd like opinions on our cash position
« Reply #10 on: September 03, 2020, 12:17:29 AM »
Bonds fluctuate, but a safe bond fund like VBTLX I would not expect to crash.
While I'm avoiding bonds for now, I agree with LWYRUP's view: since 2010 the worst year for Vanguard Total Bond Market was 2013 when it lost -2.2%.  If interest rates went up 0.5% and take bonds yields with it, this fund would take a -3.3% hit (6.6 duration x 0.5 x -1), but that would be offset by interest (1.2% now, 1.7% after a +0.5% jump).

I don't chase bond yields, so I favor short-term, high-quality bonds.  During March 2009, short-term treasury bond funds made gains during the crisis.  At the same time, long-term treasuries dropped sharply.  If you want a safe haven asset, short-term treasury bonds offer the highest safety and least interest rate risk.

ChpBstrd

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Re: I'd like opinions on our cash position
« Reply #11 on: September 08, 2020, 11:25:22 AM »
Bonds terrify me. Find a bond calculator to see what happens to your 10, 20, and 30 year treasuries when yields rise just 1-2%.

https://www.brandonrenfro.com/bond-price-calculator/

Plus the Fed just announced they will let inflation overshoot their target for a while if that's what it takes. Maybe we should not fight the fed on the way up either.

I suggest looking at putting your whole portfolio in stocks with downside protection provided by options. A collar strategy could give you a risk level similar to a bond-heavy portfolio, but with the added benefit of actually earning something the vast majority of the time. A collar can be done in a way so that it has no net cost.

https://www.optionsplaybook.com/option-strategies/collar-option/

Padonak

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Re: I'd like opinions on our cash position
« Reply #12 on: September 08, 2020, 11:34:28 AM »
I use bonds including I-bonds and VBTLX.

I have a target cash+bonds amount which will let me survive for a least 10 years without touching stocks (in case they go down significantly). Maybe 10 years is too much and I'm missing out on returns but that's what it is for now.

MustacheAndaHalf

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Re: I'd like opinions on our cash position
« Reply #13 on: September 08, 2020, 09:25:28 PM »
Bonds terrify me. Find a bond calculator to see what happens to your 10, 20, and 30 year treasuries when yields rise just 1-2%.
patient: "Doc, I broke my arm in two places."
doctor: "You should stop going to those places."

I also avoid long-term bonds, but a yield change of 2% in one year is very rare - if it's even happened.  When I look at long-term treasuries from 1972-2020 (a), the worst drop is -6.2% back in 1999.  Long-term corporate bonds lost twice that, but they carry additional risk.  In the past 48 years (a), the worst year for short-term treasuries was -0.5%.

When I was paying more attention to financial news, the general view was the Fed planned to keep rates at 0% for next year as well.  In early June the market started to rally, and when the Fed reported that conditions look bad for next year, the market dropped (roughly June 10).  If economic conditions change, the Fed could also change it's mind.  But the current prediction is 0% rates for all of next year.
https://www.cnbc.com/2020/06/10/fed-meeting-decision-interest-rates.html

(a) Portfolio Visualizer's data only goes back to 1972

Paul der Krake

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Re: I'd like opinions on our cash position
« Reply #14 on: September 08, 2020, 10:01:37 PM »
Well the crash has kinda happened?

If you wanna feel better about holding so much cash, grab a couple bank bonuses with them. With 100k to play with you should be able to grab 2 to 3% per year, more if you really time things well.

This is price you pay for indecision.