Short term money parking

[WalkaboutStache]

So here is the deal:

I have an insanely cheap loan (sub 0.5% APR) that is coming to maturity with monthly payments due until October 2022.  I am also planning to go into a new mini-retirement at the end of this year (convertible to forever retirement if the stars line up or at least the world does not go up in flames).  Between now and then, I expect to earn about the same value as the combination of my monthly expenses until the end of this year, plus the balance of the loan until maturity.  I am trying to avoid tapping into my stache to make loan payments past November and I think my options are:

* A CD paying peanuts; or
* A bond ETF.

I don't necessarily need to make buckets of money.  I just want to make more than the CD.

I understand that a bond ETF may have some downward movement, but I think it is a reasonable risk to take in order to have greater liquidity and the possibility of a bit more upside. A lot of the advice I have seen when people ask about parking money for things like a downpayment or similar potential event has involved CDs, but the bond ETF seems to make more sense to me.  Am I missing something here?

[bacchi]

If the fed raises rates, bonds will go down. They will go up eventually due to the higher rate but probably not in time for your loan payments.

The easiest and safest way to make some money is to open a bank account and get a bonus.

[Radagast]

^Bonus is correct. What tax rate are you in? Vanguard Ultra Short Bond pays 0.75%. If your tax rate is 33% or more, you would actually lose money, and either way not really worth the effort. Riskier bond funds are barely better. Get a sign up bonus, pay off the loan, or gamble with stocks. Bonds are not worth it IMO.

[ChpBstrd]

Yes on the bank account bonuses, but you'd better get on it because some may have a 1 year holding period required to get the bonus.

With bonds, you'd have to layer on a lot of either credit risk or duration risk to earn even 0.5% these days. Pointless.

I'm more interested in where one obtains a 0.5% loan.

[MustacheAndaHalf]

With bonds, you'd have to layer on a lot of either credit risk or duration risk to earn even 0.5% these days. Pointless.

3 year Treasuries pay 0.44%, which is pretty close to your 0.50% with a short duration.  Or there's 5 year Treasuries earning 0.80%, which are considered to have no credit risk.

With asset allocation, 10% stocks / 90% bonds is actually less risky than 100% bonds.  You can read about "risk parity" to learn more: in times when 100% bonds might have dropped, the 10% stocks can help offset the drop.  So that's another option if you're willing to have a very slight allocation to stocks.

[WalkaboutStache]

Thanks, everyone!  I am not in the US, so unfortunately no account opening bonuses are available.

The 0.5% loan was a miscalculation on the part of my bank.  They threw a big pile of money at me thinking I would not be able to pay down the balance in 5 years and would need to redraw at a much higher interest rate.  Suckas never heard of mustachians.

I'll probably go with Vanguard's BND ETF just to see what happens.

[Radagast]

BND lost 4.5% between August 2020 and March 2021. Very stable yes, but you are chasing 0.5%. Is your debt in dollars? If you need to pay a different currency then things would be twice as wild. It seems strange to me.

[ChpBstrd]

Thanks, everyone!  I am not in the US, so unfortunately no account opening bonuses are available.

If you have the ability to trade options, we could look at some ultra-low-risk dividend capture strategies.

The 0.5% loan was a miscalculation on the part of my bank.  They threw a big pile of money at me thinking I would not be able to pay down the balance in 5 years and would need to redraw at a much higher interest rate.  Suckas never heard of mustachians.

This is really intriguing to me and I'd love to hear more. I've never seen a sale on loans like this in the U.S. or a mortgage structured this way. The closest we get is 0% interest for X months credit card balance transfer offers. Were there origination fees we should be counting as part of the cost of the loan?

[Dicey]

Thanks, everyone!  I am not in the US, so unfortunately no account opening bonuses are available.

The 0.5% loan was a miscalculation on the part of my bank.  They threw a big pile of money at me thinking I would not be able to pay down the balance in 5 years and would need to redraw at a much higher interest rate.  Suckas never heard of mustachians.

I'll probably go with Vanguard's BND ETF just to see what happens.

Lol!

I was also going to harmonize with the bank bonus choir, but since that's off the table, why do you need to chase such small rerurns? If you just want to ease the transition into FIRE while the rest of your portfolio continues to grow, it may not matter enough to bother.

[WalkaboutStache]

@Dicey pushed me over the line of doubt and @Radagast showed the numbers that made the idea of a bond fund a turn off.  I think you guys are right: it does not make much of a difference in the long run, so I may just get whatever rate my bank offers for short term deposits and be done with it.  I am thinking of it as being in the same category as a quarterly withdrawal from the 'stache now.  I'll look into treasuries as @MustacheAndaHalf suggested when the time comes.

@ChpBstrd,  the loan rate is gone, unfortunately.  The lowest I have seen recently is around 3%, which is not bad for unsecured debt in a currency that is about as stable as USD, but I don't need another loan in my life.  To be honest, I think that even if I ever had a chance to get a loan at 0.5% again, I might not do it because I am really looking forward to being completely debt free.

[Dicey]

@Dicey pushed me over the line of doubt and @Radagast showed the numbers that made the idea of a bond fund a turn off.  I think you guys are right: it does not make much of a difference in the long run, so I may just get whatever rate my bank offers for short term deposits and be done with it.  I am thinking of it as being in the same category as a quarterly withdrawal from the 'stache now.  I'll look into treasuries as @MustacheAndaHalf suggested when the time comes.

@ChpBstrd,  the loan rate is gone, unfortunately.  The lowest I have seen recently is around 3%, which is not bad for unsecured debt in a currency that is about as stable as USD, but I don't need another loan in my life.  To be honest, I think that even if I ever had a chance to get a loan at 0.5% again, I might not do it because I am really looking forward to being completely debt free.

If your stache is big enough, IMO, being debt-free is overrated. I'm a "Beyond" member of the "Race from $2M..." I'd take as much 0.5% money as anyone was willing to give me. Unsecured? Unbelievable! 

[WalkaboutStache]

@Dicey pushed me over the line of doubt and @Radagast showed the numbers that made the idea of a bond fund a turn off.  I think you guys are right: it does not make much of a difference in the long run, so I may just get whatever rate my bank offers for short term deposits and be done with it.  I am thinking of it as being in the same category as a quarterly withdrawal from the 'stache now.  I'll look into treasuries as @MustacheAndaHalf suggested when the time comes.

@ChpBstrd,  the loan rate is gone, unfortunately.  The lowest I have seen recently is around 3%, which is not bad for unsecured debt in a currency that is about as stable as USD, but I don't need another loan in my life.  To be honest, I think that even if I ever had a chance to get a loan at 0.5% again, I might not do it because I am really looking forward to being completely debt free.

If your stache is big enough, IMO, being debt-free is overrated. I'm a "Beyond" member of the "Race from $2M..." I'd take as much 0.5% money as anyone was willing to give me. Unsecured? Unbelievable!

Not quite big enough yet.  I think if I were in your shoes I would probably take a fairly large chunk of money at those rates.  I don't think it will ever happen again since I was a bad customer and did not let them have me by the short and curlies.

[PDXTabs]

How much are we talking? If you are a US person you can go buy an i-series savings bond for up to $10K and redeem it in 12+ months. There will be a penalty, but you'll still beat a savings account.