Cash as an asset class?

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am
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Cash as an asset class?

Post by am »

Anyone have cash as part of their allocation? Just simple money market or FDIC savings account? Say a percentage of fixed assets so if bonds grow you sell some to maintain ratio of cash?
lack_ey
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Re: Cash as an asset class?

Post by lack_ey »

I don't make a distinction between long-term money, emergency funds, potential house downpayment money, and so on, so trivially there is some cash allocation there. Really, all "investments" of the kinds we talk about are just allocations of savings. It's just that the different assets have different properties, rates of returns, and risks. I consider it all fair game to use for anything.

However, I do deliberately keep a cash allocation (FDIC-insured savings account at Ally at 0.99%, which is slightly worse than available elsewhere), larger than necessary to cover half a year of expenses and buffer against most emergencies. I consider it as part of the entire AA, as filling the same role as short-term bonds but with better yields and liquidity, a reasonable alternative to actual bond funds given that they require term and credit risk for higher yields. I mean, when a total bond fund has an SEC yield less than a percentage point above a savings account and worse than a 5-year CD, the risk/reward proposition really isn't that strong.

So my AA including all liquid assets everywhere is something like 70/18/12 stocks/bonds/cash. I wouldn't call it optimized in any sense, and I don't really pay attention to it in that much detail at this point in terms of rebalancing. I just had to look it up to figure out what it was at now.
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Re: Cash as an asset class?

Post by GoldenFinch »

We have cash as part of our AA because I am still trying to get comfortable with bonds, and also because not having cash in 2008-2009 was a wake up call (I wished I had cash). So yes, it is about 10% of our AA.
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Re: Cash as an asset class?

Post by Kevin M »

GoldenFinch wrote:We have cash as part of our AA because I am still trying to get comfortable with bonds, and also because not having cash in 2008-2009 was a wake up call (I wished I had cash). So yes, it is about 10% of our AA.
I like cash, especially when it is earning more than short-term bonds (e.g., Treasuries up to 3-year maturities), but long-term Treasury bonds were much better than cash in late 2008.

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Re: Cash as an asset class?

Post by dbr »

I track cash in order to be sure it is not above a very small allocation. I am not going to specify the definition of this cash.
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Re: Cash as an asset class?

Post by nisiprius »

One of the odd things about investing advice is until fairly recently--say, up until the great bull market of the 1990s--it was considered normal to recommend a meaningful allocation to "cash" or "short-term reserves" as part of an investment portfolio. (This was separate from any "emergency fund.") This was even reflected in the composition of the LifeStrategy funds. As short a time ago as 2010, this was the composition of LifeStrategy Conservative Growth. 20% of it in near-cash even though it is locked into a mutual fund and can't be tapped independently for an emergency.

Image

In recent years, not only have recommended stock allocations increased, but at the other end, recommended "cash" or "short-term reserves" allocations have basically vanished.
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Tamales
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Re: Cash as an asset class?

Post by Tamales »

Sure, if it fits your plan, why not. Cash (using longer term CDs as a proxy for cash) has a muting effect on stock market losses, similar to the way many people use a total bond market fund.

A few weeks ago I was trying to find whether holding a perpetual 5-year CD ladder would provide a persistent positive return after inflation. Data is hard to come by, but based on one source that goes back to 1993, a 5 year CD ladder would meet that requirement. Keep in mind that data doesn't include the recent online-only banks with their high yields, so if those keep up, and you are able to get 5 year CDs with a nice bump above national averages for 5 years CDs, there would be an additional premium.

Why would this be useful? One reason is if you're in "coast" mode with your portfolio and don't see the need to take much market risk, you could potentially have quite a high allocation to this 5 year perpetual ladder and still meet your goals without much worry that unknown inflation will erode it beyond repair. But again, this is only based on data back to 1993. Five-year CDs may or may not have beat inflation in the 70's and early 80's when inflation was high.

I can't recall who it was, but someone on the forum has some extensive posts on using a portfolio of equities with "cash" as the shock absorber.
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Re: Cash as an asset class?

Post by CABob »

I track my asset allocation with a spreadsheet that identifies stock, bond, and cash assets. But in general, I consider cash as a fixed income asset of the shortest duration. For many, tracking the cash may depend on the intended use for the cash. An emergency fund for example may be established as a desired dollar amount and probably should not be looked at as a percentage of a total portfolio. Other cash, however might be tracked as a percentage of the total when one wants it to be a predetermined percentage.
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Re: Cash as an asset class?

Post by GoldenFinch »

Kevin M wrote:
GoldenFinch wrote:We have cash as part of our AA because I am still trying to get comfortable with bonds, and also because not having cash in 2008-2009 was a wake up call (I wished I had cash). So yes, it is about 10% of our AA.
I like cash, especially when it is earning more than short-term bonds (e.g., Treasuries up to 3-year maturities), but long-term Treasury bonds were much better than cash in late 2008.

Kevin
Right. I should have had bonds in 2008 and not cash. I was 100% equities. I still have too risky of a portfolio. I have recently bought bonds, but it was hard to do and it's probably 5% of assets. I do have the cash in 2% CDs and am trying to get myself to buy more bonds. I did buy Life StrategyGrowth and I know CDs are sort of a bond. I am thinking I will buy more bonds in a few years.
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Re: Cash as an asset class?

Post by Kevin M »

I track cash as a separate asset class, but don't have a specific target for it. Currently it is about 5% of my portfolio. I am retired, so cash funds my living expenses beyond what is funded by unearned income. I sell stocks or bonds to top off my cash, but not according to a strict policy.

I don't include 5-year CDs in my cash allocation, since they earn returns more like intermediate-term bonds, but with less risk; I will lose about 1% if I do an early withdrawal from a CD, and I define cash as something that I won't lose anything on if liquidated today, and that does not fluctuate in nominal value. About 70% of my fixed income is in CDs (about 50% of my portfolio). I generally don't buy CDs with maturities less than five years.

I also track money market funds as a sub-asset-class of cash, since they currently earn about 0%, whereas my other cash generally earns 1% or more. I want to minimize the amount earning 0%, but some practical considerations lead me to keep some in money market funds (in IRAs). If too much builds up in money market funds earning 0% in an IRA, I will transfer it to a bank or credit union and buy an IRA CD (currently earning about 2.25% for a 5-year).

As mentioned in previous reply, cash earning 1% (e.g., an online savings account) is earning more than Treasury securities up to about three years in maturity. So I don't see much point in making a big distinction between cash and short-term bonds at current rates. More than 25% of Total Bond Market index fund is in bonds with maturities of three years or less, and about 65% of TBM is in government bonds, so let's say about 15% of TBM is in Treasuries with maturities of three years or less. I'd rather have cash earning 1% than those Treasuries, and I have less cash than I'd have of those short-term Treasuries if all of my fixed income were in TBM.

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Dandy
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Re: Cash as an asset class?

Post by Dandy »

Yes. In the past allocations were often stated in stock, bonds and cash. Long before cash's low interest rates the cash allocation seemed to disappear from allocation suggestions - maybe selling cash isn't financially rewarding. Oh well, cash like all fixed income choices has some pros and cons. People focus on the cons - low yields but seem to understate the pros liquidity and many times no loss of nominal value.

Many Value Fund managers keep a large percentage of cash when stocks are highly valued and bonds seem to be too risky. They seem to be patient and wait for stocks to "correct" and/or bonds to pay a better yield. Now a lot depends on what you consider cash and liquid. If you own stock or bond funds they are liquid i.e. you can sell today with a gain or loss and the money can be in your regular checking account in a couple of days. Are CDs cash? how about short term bonds? Treasury bills? I will try to avoid that debate.

I see cash as those products that have no practical risk to principal and can be used almost immediately and won't lose value if interest rates rise. So I look at direct bank CDs (even though there is an early redemption fee), money markets, savings accounts, stable value funds, etc. So these "investments" are predictable - you know the interest and know the redemption/maturity value.

If your fixed income allocation is mostly to provide stability with growth/risk more on the equity side these cash products have a role.
They will hold their value when interest rates rise as opposed to many other fixed income investments that will be negatively affected. Of course, if interest rates drop they don't participate in increase value. Also, when markets roil they are calm. When markets really tank you can use some of this safe money to buy low. (you may have to ignore the knee jerk "market timer" finger wag).

I try to keep between 5 and 10% of my overall allocation in those cash products. Much more if you count my rather large TIRA CD ladder. Those are brokerage CDs which aren't particularly liquid and can lose money on early redemption. I consider that CD ladder more like bonds.

You don't want to have too much allocated to cash products especially in the early accumulation phase since you are usually more interested in growth/equities and bonds. There are times, such as when you first buy a house, that you may want to have a bit more of cash allocation.
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Re: Cash as an asset class?

Post by staythecourse »

Yes cash is an superasset class. David Darst in his book, "Art of Asset Allocation" has cash as a separate asset class. He defines superasset classes as securities that are different in risk, return, and correlation coefficient. He has: MM, bank accounts, CD's, any ultra short term bond up to 1 yr. duration as cash.

Cash also has another inherent, unique quality that is another reason it is its own asset class: Liquidity. I always say one does not appreciate liquidity until you are in a time you NEED it.

The one caveat in regards to cash as an asset class is that in effect (outside of its advantage of liquidity) by adding it to an asset allocation that includes other fixed income it will behave in shortening the duration of the bond risk and return characteristics by its weighed average. For example: Investor X hold 50% cash and 50% bonds of 10 yr. duration. His holdings are now more like a risk/ return of similar credit bonds of duration of 5 yrs.

So what one can do if they plan on holding more cash as an asset class is go longer on the bond duration. That is one reason the PP is so elegant even after 30+ years it was developed. By adding cash and LT treasuries it gives a duration of about 15 yr. AND has some interesting qualities such as: Liquidity (from cash), flight to safety (from LT treasuries), deflation hedge (LT treasuries and cash), inflation hedge (cash), protection against monetary tightening like the 70's (cash), allowing an opportunity to rebalance for possible rebalancing bonus, AND if one has limited tax deferred, but wants to hold LT treasuries one can own less amount on the VERY long end (zero coupon) and dilute it down with the amount of cash needed to get to a duration they are comfortable with.

Good luck.
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Re: Cash as an asset class?

Post by nisiprius »

Over the past few years mainstream "investing" press has been constantly suggesting "shortening up duration" in bonds. (I haven't done this myself and am personally skeptical about it, but that's a different topic).

The interesting thing is that when they suggest "shortening duration" the suggestion is almost always that the way to do this is buy moving to bond funds with shorter durations, and rarely or never is it pointed out that it is also perfectly feasible to do so by putting some of the portfolio into cash.
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Re: Cash as an asset class?

Post by Tigermoose »

Would it be OK to count pensions as part of one's cash asset type?
Institutions matter
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Re: Cash as an asset class?

Post by knowsnothing »

I keep about 2 years worth of living expenses in short term reserves and track it separately. If I had some lifestyle creep I would consider 'rebalancing' into more cash.
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Re: Cash as an asset class?

Post by Dandy »

Would it be OK to count pensions as part of one's cash asset type

This question often sets off a rather emotional discussion on whether pensions or any stream of income should be taken into account (almost everyone agrees) and going further should it be a formal part of your investment allocation (which is not universally agreed).

I'm in the take it into account only side. You are in a much better position with a pension than if you didn't have one. That allows you to take a bit more risk with your investable assets IF you choose. So, look at your retirement drawdown needs, your health, your pension, other major assets e.g. house etc and decide what risk/alloction you feel you should take.

I'm not in favor of turning an income stream into a formal part of your allocation. e.g if you decide that a 60/40 allocation is what you want then convert the pension into a "pretend bond" that say accounts for 30% of the 40% fixed income. So you end up with an allocation that is nominally 60% equities, 10% bonds and 30% pretend bonds - when you actually have a 90/10 portfolio of investable assets.

If you want 90/10 that is ok. You don't need to pretend that you have 60/40 allocation.
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Re: Cash as an asset class?

Post by dbr »

Tigermoose wrote:Would it be OK to count pensions as part of one's cash asset type?
Not if the result is that it causes you to take too much risk in stocks. For you, if you do that, do you end up taking too much risk in stocks? How would you know?

Hint: You have to start by understanding how you decide on an asset allocation to start with.

What are some other reasons counting pensions as part of one's cash asset type might result in one's assets not being arranged in the best way?
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Re: Cash as an asset class?

Post by Kevin M »

Tigermoose wrote:Would it be OK to count pensions as part of one's cash asset type?
The more typical question is whether or not one should count pensions and social security benefits as part of their bond allocation. You can find many forum discussions about this with a Google search something like this:

Code: Select all

pension "asset allocation" site:bogleheads.org
"Cash" may not be the best word to use, but I think most people include liquidity as a feature of cash or short-term reserves (Vanguard's term for the asset class that includes their money market funds--and none of their other funds). Liquidity describes the degree to which the asset can be quickly converted to a form that can be used to buy something else, with minimal or no impact on the price of the asset. Pensions and social security are not liquid, since the present value of the future income streams cannot be converted to a form that can be used to buy something else.

I seemed to recall hearing about being able to sell one's pension for a lump sum (not to be confused with originally taking one's pension in the form of a lump sum), but a quick Google indicated that this is most likely a very bad deal, and may be illegal. So even if possible, it probably does not meet the liquidity criterion of not having a negative impact on the "price" upon sale.

My liquidity criteria to consider something cash usually are: I can sell it or use it within one or two business days with no loss in value to buy something else .

A direct CD fails the "no loss in value" criterion, since there will be a loss of value (the amount of the early withdrawal penalty) if I want to use the proceeds before maturity to buy something else. Within an IRA, it also fails the timeliness criterion, since it will take about 2-3 weeks to do the early withdrawal and transfer it to another institution that offers another asset class (other than cash) that I want to buy. In a taxable account, typically a direct CD passes this criterion--at least so far in my experience--but there is the possibility of an early withdrawal being disallowed, so probably not wise to assume it always will meet this criterion.

Note that even an IRA savings account in a bank or credit union fails the timeliness criterion, which is the main reason I keep some cash in money market accounts earning 0% at places like Vanguard, and don't have any IRA savings accounts (although if I did, I probably would make an exception to my criteria and classify it as cash).

The other characteristic typically associated with cash is lower yield than bonds, but as I've pointed out, that is not necessarily the case now for retail investors--at least with respect to Treasuries with maturities up to about three years. It also is not the case for intermediate-term CDs compared to Treasuries of similar maturity, so this is another strike against classifying any decent intermediate-term CD as cash.

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Re: Cash as an asset class?

Post by dbr »

Kevin M wrote:
My liquidity criteria to consider something cash usually are: I can sell it or use it within one or two business days with no loss in value to buy something else .
Then in effect cash is not a meaningful asset class for investing purposes. I agree with that and do not concern myself with what assets are or are not cash.

Note your definition might exclude the OP's definition of money market or savings account unless he can get the money through an ATM or by getting someone to take a check he can write on the account, somehow. On the other hand a credit card account would probably be the most certain mechanism for being able to buy something more or less instantly even though technically there is no withdrawable asset balance in a credit card at all.
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Re: Cash as an asset class?

Post by goingup »

Kevin M wrote: My liquidity criteria to consider something cash usually are: I can sell it or use it within one or two business days with no loss in value to buy something else .
This is how I think of cash, which is about 5% of our portfolio. Vanguard's ACH time from the MM to our bank is T+2 business days.
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Re: Cash as an asset class?

Post by midareff »

I too track cash as a separate asset class and cap it at 4%. I'm retired and draw monthly from Limited Term Munis, which are in turn fed by rebalancing from equities and IT Tax-Ex. If/when it gets over 4% I simply put it back in.

Edit Note: As a retiree this is the funding I use for international trips/tours and any unexpected large expenses.
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Re: Cash as an asset class?

Post by Kevin M »

dbr wrote:
Kevin M wrote:
My liquidity criteria to consider something cash usually are: I can sell it or use it within one or two business days with no loss in value to buy something else .
Then in effect cash is not a meaningful asset class for investing purposes.
Please expand; this does not compute. Note that the "something else" could be a stock or bond fund.
dbr wrote:Note your definition might exclude the OP's definition of money market or savings account unless he can get the money through an ATM or by getting someone to take a check he can write on the account, somehow.
I pretty much crafted my definition around ACH transfer times. Immediate access is the ideal, but maximum ACH transfer time typically is two business days.

With a money market fund at Vanguard or Fidelity, in an IRA or taxable account, I can buy a stock or bond fund on the same business day. I also can do a same-day stock or bond fund purchase in a taxable account at Vanguard with ACH transfer from a bank or credit union savings or checking account (during normal market hours).
dbr wrote:On the other hand a credit card account would probably be the most certain mechanism for being able to buy something more or less instantly even though technically there is no withdrawable asset balance in a credit card at all.
True for most living expenses, but I don't think I can buy a stock or bond fund with a credit card. Also, I pay off my credit card balances monthly from my cash allocation, so for me, a credit card is basically a way to access my cash.

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Re: Cash as an asset class?

Post by dbr »

Kevin M wrote:
dbr wrote:
Kevin M wrote:
My liquidity criteria to consider something cash usually are: I can sell it or use it within one or two business days with no loss in value to buy something else .
Then in effect cash is not a meaningful asset class for investing purposes.
Please expand; this does not compute. Note that the "something else" could be a stock or bond fund.
dbr wrote:Note your definition might exclude the OP's definition of money market or savings account unless he can get the money through an ATM or by getting someone to take a check he can write on the account, somehow.
I pretty much crafted my definition around ACH transfer times. Immediate access is the ideal, but maximum ACH transfer time typically is two business days.

With a money market fund at Vanguard or Fidelity, in an IRA or taxable account, I can buy a stock or bond fund on the same business day. I also can do a same-day stock or bond fund purchase in a taxable account at Vanguard with ACH transfer from a bank or credit union savings or checking account (during normal market hours).
dbr wrote:On the other hand a credit card account would probably be the most certain mechanism for being able to buy something more or less instantly even though technically there is no withdrawable asset balance in a credit card at all.
True for most living expenses, but I don't think I can buy a stock or bond fund with a credit card. Also, I pay off my credit card balances monthly from my cash allocation, so for me, a credit card is basically a way to access my cash.

Kevin
Fair enough. I was not so sure you meant to include transactions within financial institutions which probably can indeed happen within same or one or two days. For some arrangements the time period is longer, but not by much. I tend to think that any transaction that can be managed within "normal transaction times" is liquid. The real condition is that the value is reliable.
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Re: Cash as an asset class?

Post by linenfort »

am wrote:Anyone have cash as part of their allocation? Just simple money market or FDIC savings account? Say a percentage of fixed assets so if bonds grow you sell some to maintain ratio of cash?
Yes, as part of a permanent portfolio. 20-25% in short term treasury notes and bills.
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Re: Cash as an asset class?

Post by avenger »

My target allocation to cash is 5% in my portfolio. It really is my emergency fund and I count my EF as part of my portfolio. My stable value fund has no transfer restrictions and I consider it cash.

Others may view that differently and they are welcome to do so.
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am
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Re: Cash as an asset class?

Post by am »

So does your emergency fund increase as your portfolio grows? Seems like it should be the other way.
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Re: Cash as an asset class?

Post by avenger »

am wrote:So does your emergency fund increase as your portfolio grows? Seems like it should be the other way.
As it grows, it will be more than my emergency fund. Can be cash for a new car. Can be cash for a vacation. The money actually doesn't care so much what it is going to be used for. :happy
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Re: Cash as an asset class?

Post by backpacker »

Cash, CDs, short-term bonds...they're all basically the same thing. All of them are assets. None of them are investments. I agree with Warren Buffett:
Warren Buffett wrote: Investing is often described as the process of laying out money now in the expectation of receiving more money in the future. At Berkshire Hathaway we take a more demanding approach, defining investing as the transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power — after taxes have been paid on nominal gains — in the future. More succinctly, investing is forgoing consumption now in order to have the ability to consume more at a later date.
Cash, CDs, and short term bonds cannot be relied on to provide positive real returns, so are not investments in the relevant sense. I hold cash to pay my bills, not to help out my portfolio.
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Re: Cash as an asset class?

Post by am »

Cash is not correlated with stocks and bonds and can help diversify a portfolio. Before the Great Recession, cash actually had a nice return. Could not believe it but Vanguard MM from 07 was returning 4-5%. In some years cash, CDs, MM probably beat stocks and bonds.
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Re: Cash as an asset class?

Post by Kevin M »

backpacker wrote: Cash, CDs, and short term bonds cannot be relied on to provide positive real returns, so are not investments in the relevant sense.
Is a 5-year Treasury note an investment? How about a 7-year? Ten-year? Is any bond an investment? Where do you draw the line?

A good 5-year CD yields 2.25%, and a 5-year Treasury yields 1.34%. A 10-year Treasury yields 1.93%, so still less than the 5-year CD. If your criterion is expected return, then the 5-year CD beats even a 10-year Treasury.

Total Bond Index holds lots of Treasuries and lots of short-term bonds. Is it an investment?

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Re: Cash as an asset class?

Post by backpacker »

Kevin M wrote:
backpacker wrote: Cash, CDs, and short term bonds cannot be relied on to provide positive real returns, so are not investments in the relevant sense.
Is a 5-year Treasury note an investment? How about a 7-year? Ten-year? Is any bond an investment? Where do you draw the line?

A good 5-year CD yields 2.25%, and a 5-year Treasury yields 1.34%. A 10-year Treasury yields 1.93%, so still less than the 5-year CD. If your criterion is expected return, then the 5-year CD beats even a 10-year Treasury.

Total Bond Index holds lots of Treasuries and lots of short-term bonds. Is it an investment?
The idea is that investments are the thins you buy when you are engaged in investing. And you are investing if you are forgoing present consumption with the reasoned expectation of higher future consumption.

I draw the line at positive expected return net inflation and taxes. 10 year expected inflation is ~1.8%. So given a 25% tax rate, 5-year CDs, 5-year treasuries, and 10-year treasuries are all out until rates go up. Total bonds is mixed bag. It holds some investments. It holds other non-investment assets as well.

One of the oddities of this definition of "investing" is that what counts as an investment changes over time (because yield and taxes change). It's also relative to tax rates and whether an investment will be held in tax-advantaged space. Good 5-year CDs should probably count as investments if they can be held in tax-advantaged space, for instance. :happy
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Re: Cash as an asset class?

Post by rgs92 »

I don't think Mr. Bogle advocates any position in cash or even CDs as far as I know (correct me if I'm wrong here...).
I'm assuming that this is because a decent portion of your bond index fund will be in short term bonds, which might as well be cash.
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Re: Cash as an asset class?

Post by watchnerd »

am wrote:Anyone have cash as part of their allocation? Just simple money market or FDIC savings account? Say a percentage of fixed assets so if bonds grow you sell some to maintain ratio of cash?
Yes, I do, as part of my retirement portfolio (i.e. I'm not counting emergency funds, regular savings, etc.). So it exists within 401k and IRA 'containers'.

You can see the allocation in my signature.
Global stocks, IG/HY bonds, gold & digital assets at market weights 75% / 19% / 6% || LMP: TIPS ladder
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Re: Cash as an asset class?

Post by dbr »

backpacker wrote:
Kevin M wrote:
backpacker wrote: Cash, CDs, and short term bonds cannot be relied on to provide positive real returns, so are not investments in the relevant sense.
Is a 5-year Treasury note an investment? How about a 7-year? Ten-year? Is any bond an investment? Where do you draw the line?

A good 5-year CD yields 2.25%, and a 5-year Treasury yields 1.34%. A 10-year Treasury yields 1.93%, so still less than the 5-year CD. If your criterion is expected return, then the 5-year CD beats even a 10-year Treasury.

Total Bond Index holds lots of Treasuries and lots of short-term bonds. Is it an investment?
The idea is that investments are the thins you buy when you are engaged in investing. And you are investing if you are forgoing present consumption with the reasoned expectation of higher future consumption.

I draw the line at positive expected return net inflation and taxes. 10 year expected inflation is ~1.8%. So given a 25% tax rate, 5-year CDs, 5-year treasuries, and 10-year treasuries are all out until rates go up. Total bonds is mixed bag. It holds some investments. It holds other non-investment assets as well.

One of the oddities of this definition of "investing" is that what counts as an investment changes over time (because yield and taxes change). It's also relative to tax rates and whether an investment will be held in tax-advantaged space. Good 5-year CDs should probably count as investments if they can be held in tax-advantaged space, for instance. :happy
It is indeed a common and conventional definition that an investment is what you buy when you forgo consumption with the expectation of higher future consumption. But I think that definition results in confusion in practice. Most people here are concerned with what to do with assets that have not been spent whether or not there is an expectation of return. I personally think it is more practical to simply enumerate what sorts of holdings we want to talk about and go from there. Most people here probably want bank savings accounts, CDs, bonds with currently negative real yields and so on to be investments. There can be some discussion about buckets where people sometimes choose to separate some funds from "the portfolio," emergency funds being the most common so treated. So called liability matching portfolios are another. There can be amazing discussions about whether the home one owns is an invesment or even an asset in some cases. There is also a huge unending discussion about virtual portfolio assets such as Social Security as a bond. Why not SS as cash?
Caduceus
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Joined: Mon Sep 17, 2012 1:47 am

Re: Cash as an asset class?

Post by Caduceus »

Are options investments?

I think cash has optionality. They are puts on the stock market, where the cost is not the upfront premium but the spread between the cash return and some other benchmark, depending on how you conceptualize the opportunity cost.
dbr
Posts: 46181
Joined: Sun Mar 04, 2007 8:50 am

Re: Cash as an asset class?

Post by dbr »

Caduceus wrote:Are options investments?

I think cash has optionality. They are puts on the stock market, where the cost is not the upfront premium but the spread between the cash return and some other benchmark, depending on how you conceptualize the opportunity cost.
I think that is a reasonable point of view if one is looking at opportunities. I also think it is possible one would not include options as part of a portfolio that is to be characterized by the risk/return structure of stocks and bonds. Cash can pretty easily be included in that structure as a zero return, zero risk "bond." But it all depends on what one is trying to think about at the time.
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