Bogleheads.org

enad wrote: ↑Thu Mar 30, 2023 11:58 pm +1. We also keep between 3-6 months in checking that earns 3.00% and the rest in a higher yielding MMF.

Yeah, I mostly use HYSA but it's the same idea, since I can transfer money instantly between checking and HYSA.

billfromct wrote: ↑Thu Mar 30, 2023 4:53 pm Maybe the bank financial advisor (FA) will “provide refunds if his/her advice results in lost money”? Who knows?

If the FA advice results in gains, I would think the FA will make more money.

bill

I think it depends on their fee structure. If a FA charges 1% AUM, yes technically they make more if the assets perform, but they already make a lot from holding customer's assets alone.

A 20% perf-fee is more honest in this regard; if the assets don't appreciate then they make nothing.

Brazer wrote: ↑Thu Mar 30, 2023 1:27 pm Question is, do I try again? If so, how do I approach?

Thanks for any insights.

You don't try again. Let them do how they please. You already offered advice, they didn't listen. Not much more to be done here.

This is very much the case - but there's a power element I believe that exists. If I were to explain she would be "set up" well, I think having children without marriage could be a viable option. Essentially discussing ahead of time and potentially papering / legally drafting certain things to secure her and the children's futures. But I ask myself if this is more complexity than it's worth. It might be worthwhile, although a prenup + marriage is more common than making arrangements + not marrying. The latter is probably safer, if you want to seek that route. Be sure to check out a list of common-law marriage states: https://www.nolo.com/legal-encyclopedia/free-books/living-together-book/chapter2-4.html. If you are in one of them...

theophiled wrote: ↑Thu Mar 30, 2023 2:35 pm I have brought up a pre-nup in the past and she is aware she would engage / sign one should there be a marriage.

To be honest, I'm contemplating the purpose of marriage in the first place. I have met some entrepreneurs who are of the mindset that you can have children without marriage and one fellow buddy has done exactly that. The concept of marriage seems like it presents a bunch of legal challenges to wealth / potential child issues / spousal support / alimony - should things turn out badly down the line. Maybe I'm not ready for marriage yet but this next stage seems scary not exciting - and that also worries me.

The problem is that some women don't want children without marriage. I suggest you ask her what she thinks about that.

rgs92 wrote: ↑Thu Mar 30, 2023 12:13 pm At times when money market and CD returns were very high, like 1982, in retrospect those were the best-ever times to buy stocks.
So a contrarian approach could be be best.
And this makes sense, because the high risk-free rate (nominal or real) provides competition for stocks and depresses their value.

That's my take as well, although the efficient frontier chart tries to claim otherwise. Their argument is that stocks return even higher when the risk-free rate is high.

Cash is looking like the best investment right now. Going longer on bond duration only nets a quarter of a percent in yield. The equity market is not doing well. Is there any rational reason for an investor to hold anything but cash right now? The only disadvantage I can see to cash is that when/if interest rates come back down, cash will no longer be as attractive of an investment, and bond prices and equity prices will surge at that moment. So if one waits until that moment, one will miss out on the equity/bond surge. So perhaps the best portfolio is a balanced mixture of cash, bonds, and stocks? It seems deficient that the 3-fund portfolio is only bonds and stocks. It seems like you would want some cash in that mix, for precisely this s...

czaj wrote: ↑Wed Mar 29, 2023 8:41 pm So are folks waiting to cancel their policies in case of legislation updates?

I believe the program is set to start this July. As such, I think it's prudent to keep it at least until then.

UpperNwGuy wrote: ↑Wed Mar 29, 2023 7:12 pm But why 3-6 months? I've kept one month or less in checking for the last 20 years and not ever wished I had more.

My checking is actually $100. But the OP's question was how to split cash between checking (presumably where they pay bills from) and elsewhere.

If you think they should keep only one month in checking and transfer $ whenever they go over, feel free to suggest them so.

I think so too. Is there a reasonable rule of thumb minimum amount of cash to keep in my checking? I will move the rest over. I was thinking of leaving like 25K in the checking account and the rest to MMF. But to be honest, my monthly expenses right now are around 3-5k a month, so even that's being conservative. It's personal but what I recommend is 3~6 months of expenses in checking, then the rest in MMF. With several brokerages now supporting auto-redemption of MMF to pay bills, what would be the purpose of keeping 3-6 months of expenses in a checking account earning close to nothing? You should ask the OP. The question being asked was "Is there a reasonable rule of thumb minimum amount of cash to keep in my checking? I will move th...

aboose wrote: ↑Wed Mar 29, 2023 6:54 pm Thanks for all the replies everyone.

I'm living quite frugal right now, so 3-6 months of expenses amounts to around 12-24K for me. I don't know why, it's probably just a mental block, but I don't feel comfortable having less than 25K in pure cash. So I just moved all the rest of my cash to vanguard settlement fund for now, but we'll see if I reduce my checking account position even more. I'm not sure what relative sizes we are all talking about here, but 25K seems okay for cash right now, maybe kind of high.

Try using HYSA if you can. You can pay bills out of HYSA too.

I think so too. Is there a reasonable rule of thumb minimum amount of cash to keep in my checking? I will move the rest over. I was thinking of leaving like 25K in the checking account and the rest to MMF. But to be honest, my monthly expenses right now are around 3-5k a month, so even that's being conservative. It's personal but what I recommend is 3~6 months of expenses in checking, then the rest in MMF. With several brokerages now supporting auto-redemption of MMF to pay bills, what would be the purpose of keeping 3-6 months of expenses in a checking account earning close to nothing? You should ask the OP. The question being asked was "Is there a reasonable rule of thumb minimum amount of cash to keep in my checking? I will move th...

Can't you temporarily forward mail? I don't reckon you need someone at the house, other than watching out for burglary and what not...but short of having a tenant, periodically checking might not help all that much.

aboose wrote: ↑Wed Mar 29, 2023 6:21 pm I think so too.

Is there a reasonable rule of thumb minimum amount of cash to keep in my checking? I will move the rest over. I was thinking of leaving like 25K in the checking account and the rest to MMF. But to be honest, my monthly expenses right now are around 3-5k a month, so even that's being conservative.

It's personal but what I recommend is 3~6 months of expenses in checking, then the rest in MMF.

Just extend Cobra at $500/mo to get covered for April. At least you get the same coverage as before, which is presumably better than ACA.

guanonics wrote: ↑Wed Mar 29, 2023 12:58 pm Isn't the equity risk premium defined to be the expectation that equities return higher than the risk-free rate? I may have misunderstood your point.

There is no such expectation. Just because the risk-free rate is 4.5% doesn't mean you can expect equities to return higher. In fact it is usually the opposite because people flock to receive the risk-free rate instead of holding equities.

This is a theory question that has been bugging me and I'd love to get this community's take on it. The bogleheads wiki indicates that risk tolerance is the primary factor in determining equity allocation, stating: How much in bonds? That's the basic question of asset allocation. Before you decide, you first need to balance your ability, willingness, and need to take risk. The more risk you can handle, the less bonds you need. I'm wondering whether the risk-free rate plays any role in determining your equity allocation, especially relevant as the 30y TIPS yield has recently swung from negative territory to exceeding 1.5%. If real yields went to say 3% on the 30y TIPS, my lizard brain would feel tempted to buy some in lieu of equities. Here...

If I understand you, you are talking about a $750 trip having 75000 worth of points to soak up 2.625% spend. But putting non-category spend on the card and yielding 2.625 per dollar (aka 2.625% rewards) isn't optimal, if you could earn up to say 5.25% rewards on that same spending. So for an extreme example, you can spend $28.6k and you'd get $750 worth of points (28.6k*2.625=75k points). But if you happened to be able spend that on a 5.25% category (difficult but to show an extreme example), you would earn $1500 in cash, or twice as much. Statement credit is the same as cash back, money is fungible. But no, you wouldn't be soaking up the full amount, this example is just to show the difference at scale. But it's still true that if you can...

Bmac wrote: ↑Wed Mar 29, 2023 8:52 am While this is true for premarital assets (IRAs, real estate, etc.) with regard to post marital assets it is not. So while maintaining separate accounts in terms of each partner’s discretionary spending or investing may make philosophical sense, in practice it’s moot as far as ownership.

Not at all moot.

Say I have 1M in a checking account pre-marital. I would have to keep this account pre-marital or else I risk losing half of it. I'm not a cheap person but I'm not generous enough to gift 500K either.

I did forget that category, but it is still a category that you'd still easily earn 5.25% domestically. But more importantly, I did not realize you can use the credit on any purchases in the past 12 months. So you can redeem it on the purchases from the same trip that you earned the rewards then? That is much better then. Since traveling is lumpy, I was thinking you'd have to spend at subpar rewards rates to redeem it domestically. Then you're not competing with 5.25%, but rather 3% travel/dining no FTF cards like Costco Citi / AAA Travel Advantage coupled with 1.5% QuickSilver. The breakeven ratio is then when (3% * x + 1.5% * (1-x) = 2.625% So if you spend < 75% on travel/dining overseas compared to non-category spend, the BofA Travel Re...

supalong52 wrote: ↑Wed Mar 29, 2023 12:23 am Do you live in a community property state or separate property state? We merged everything starting from marriage, which would be considered community property anyway. So all paychecks go into the same account, and all bills are paid from that account. Except we kept our retirement accounts as separate property per our prenup. I paid off my spouse's college debt using my funds.

Not if you didn't commingle assets. Premarital assets remain yours in a community property state. This is why Zuckerberg tied the knot a day after the Facebook IPO.

tomsense76 wrote: ↑Wed Mar 29, 2023 12:11 am Under what conditions does one need to file?

1. Any capital gains (even if negative so losses)
2. Any positive capital gains
3. Any capital gains over the deduction amount

I think you just look at capital gains (minus CL carryover and everything else) on your federal return then if you have LTCG of 250K+ then you file to pay taxes to Washington State.

wenchleaf wrote: ↑Tue Mar 28, 2023 11:58 pm The problem is only travel credit gets that full 2.625% back. Although their category is broad, it means you may have to redeem some at 0.6x2.625% (general cash back) or adjust your spending temporarily away from say 5.25% travel rewards cards to make the most of it.

First, they also allow dining.

Second, travel expenses tend to be lumpy. For example, say you spend $750 on 3-nights at the hotel. Try consuming $750 worth of points via TR cashback - that's 30K of spending covered. I'm still working on points booked last July.

If you set up Bank of America Platinum Honors, the Travel Reward card can do 2.62% on everything no foreign transaction fee.

9-5 Suited wrote: ↑Tue Mar 28, 2023 8:31 pm You’re right in isolation, but I think the previous user is saying compared to the primary alternative of just selling the stock and paying the taxes to buy the car, this is a risk of the covered call approach. It would also be a risk of the loan approach, too.

Their response is loaded because this thread is supposed to be about writing covered calls, but they're responding to the idea of holding VTI until a lumpy purchase. Personally I'd set aside cash for planned lumpy purchases.

evancox10 wrote: ↑Tue Mar 28, 2023 2:38 pm I'm sorry, but the downside risk is right there in your post: what if VTI goes down but doesn't come back (edit: within the relevant time frame)?

But that's not the downside risk of writing covered calls. If you write covered calls and VTI goes down, you pocket the premium. And that's inherently better than not writing covered calls.

watchnerd wrote: ↑Tue Mar 28, 2023 8:23 am Well now you have bonds paying 4% selling at 25x earnings.

And S&P 500 PE at 21x earnings.

So it's a lot closer to even now than it used to be.

It's closer but still not that close. As the above poster said, 4% is all you get on bonds. If S&P earnings go up by 10% and the PE stays at 21X, you earn 10%.

Paradise wrote: ↑Mon Mar 27, 2023 8:18 pm My logic is to set the strike price at let’s say 215 and sell enough shares so that if it executes it will cover the purchase. 210 seems to be a pretty difficult bar to pass post Russian invasion. If it executes and I make $20 extra per share than I would for selling it now, best case it doesn’t execute and I repeat. I guess there is a worst case where it goes down so far that I would have been better off selling it outright today.

Anyone ever done this? Any other downsides? Just use my regular brokerage account?

The downside is that VTI keeps going and you'd end up losing $. Selling calls is a limited-upside unlimited-downside play.

I've never seen how you get around the historical result that a 60/40 stock/bond portfolio has a 96.6% success rate at 4% for 30 years (using this tool as an example: https://engaging-data.com/visualizing-4-rule/ ) but the result at 100% bonds is a 47.9% success rate which only returns to a 95.8% success rate at 2.8% withdrawal. When advising a person to take no more risk in stocks one has to think a bit about this. A different example is that if you can buy a 30 year TIPS LMP at 2% real yield you get a payout of 4.4%, but 0% real you get 3.3%, and at -2% you have to be happy with 2.4%. How you are to arrange that you get TIPS at 2% real is a good trick. Similar mathematical issues affect the cost of SPIAs if your interest is a nominal lif...

jeffyscott wrote: ↑Tue Mar 28, 2023 12:08 pm St. Louis Fed's "How the Fed Implements Monetary Policy" (in plain English), includes:

Open Market Operations: Maintaining Ample Reserves
Open market operations are the buying and selling of government securities by the Federal Reserve.
https://www.stlouisfed.org/in-plain-eng ... ary-policy

Does this not mean that, in addition to other actions, the Fed would buy and sell T-bills in order to keep the short term interest rate near their target?

Sure. And...I was talking about the FFR.

FFR is a policy target, it is not set by the market. You never hear headlines like "our effective FFR is 15% because traders dumped T-bills."

evancox10 wrote: ↑Mon Mar 27, 2023 11:34 am I agree they don’t target the treasury rate directly, but as I understand it, the fed buys and sells short term treasuries in order to keep the Effective Federal Funds Rate within their target range. So it is maybe a little disingenuous to say the price of short term treasuries it set solely by supply and demand.

This is not my understanding of how FFR works.

My understanding is that the Fed simply says "if you park cash at our repo facility overnight, we'll give you 4.8% (or whatever they announce)." They don't buy or sell anything to maintain the FFR.

dbr wrote: ↑Tue Mar 28, 2023 7:24 am More specifically Bernstein means reducing risk in stocks. Other sources of risk take more nuanced handling. How risky how much in stocks actually is would also be as nuanced discussion, but I think there is wisdom in the point for some investors.

Yeah reducing risk in stocks is easy but maintaining purchasing power while doing so is not.

The declining glidepath appears to fit the bill, although "stop playing" sounds more abrupt than the slow glidepath over years and decades.

20cm wrote: ↑Mon Mar 27, 2023 4:29 pm It looks like generic advice that they got from someone who hasn't considered what a high allocation to fixed income does to returns in that scenario and hasn't done the analysis as to what a high-probability perpetual withdrawal rate is with a more aggressive asset allocation.

You haven't heard of Dr. William Bernstein? I believe he's a forum member as well.

km91 wrote: ↑Mon Mar 27, 2023 1:49 pm That's right, if we believe a fundamental relationship between risk and return exists, we should expect changes in rates to signal something about the perceived riskiness of the risk free asset.

My personal belief is that the aggregate level of "risk" in financial markets, however you want to define it, probably doesn't change all that much. Reducing risk for one set of market participants really just means that it's being pushed on to someone else, wittingly or unwittingly.

I don't even think the risk-free rate is related to equity risk premium. In fact the relationship, if exists, could be inverse where higher risk-free rate = lower equity returns because money flows into safe assets yielding pretty good returns risk-free.

km91 wrote: ↑Mon Mar 27, 2023 12:24 pm Typically the risk free rate used in risk premium models is the 3mo t bill rate. Nothing can truly be risk free but the t bill rate is as close to zero credit risk, zero rate risk as can be

I see, that makes sense. I agree 3-mo T-bills are as close to zero risk as can be.

Beensabu wrote: ↑Mon Mar 27, 2023 12:17 pm No, I'm not talking about NAV changes. There is no zero risk anymore as far as default risk, that's the point. The risk-free asset is not risk-free. How risky it actually is, I have no idea.

By definition, the risk-free rate requires risk-free assets. If something like US Treasuries aren't deemed risk-free anymore, then we need to look elsewhere for the risk-free rate.

Of course, the notion of the risk-free rate is dubious to begin with, because almost nothing is truly zero-risk.

Beensabu wrote: ↑Sun Mar 26, 2023 12:42 pm If the equity risk premium is indeed shrinking, then perhaps it's not just that the premium for taking equity risk is smaller, but that the risk of the "risk-free" asset has increased. It's not like nobody has ever thought up and successfully marketed crazy risk instruments when it comes to bonds, or that bonds have never been rated as less risky than they actually turned out to be.

I think you're conflating various kinds of risks. When we say the risk-free rate, we're talking about assets carrying zero risk, not the NAV of risk-free assets staying flat.

Seems like a way to buy high and sell low in my honest opinion. You will likely get less return on your fixed income by staying short. If you decide to change asset allocation and buy more equities, those prices will likely have risen due to interest rate drops. Sure, but I am not trying to drive home returns on my fixed income which is like 6% of my asset allocation. 94% all-in equities matter a whole lot more. Longer duration bonds could have a place if yields are high, but not when they're low. Also, cash ain't too shabby: https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&mode=1&timePeriod=4&startYear=2015&firstMonth=1&endYear=2023&lastMonth=12&calendarAligned=true&includeYTD=false&a...

MrJedi wrote: ↑Mon Mar 27, 2023 10:56 am Then what do you do with your money if/when the curve un-inverts and your 6 month is paying maybe 1%?

Well I actually do not play the yield game. But if I did, I would craft some kind of duration vs yield formula where I would demand higher yield for longer duration. For example I might require 7% to take on 20Y, 5% to take on 10Y etc etc or I buy equities instead.

MrJedi wrote: ↑Mon Mar 27, 2023 10:45 am 6 month plummet would likely be simultaneous with 10 year plummet, so you would miss the boat. There is no jumping ship, you would need to be predictive, not reactive.

You can very clearly see that effect here with the recent volatility.

https://home.treasury.gov/resource-cent ... nth=202303

Since I don't like 10Y at 3.5%, 10Y going lower doesn't miss me anything. The expected rate of total return remains at 3.5% even if the rates fall, since your future bonds will yield less and less. There's no free lunch here.

Kenkat wrote: ↑Mon Mar 27, 2023 10:11 am That’s fine but if this is money invested for the long term, say for 10 years or more, there is risk involved with either approach. In general, longer term bonds return more than shorter term bonds if held to maturity. That’s only incorrect if rates continue rising, but we can’t predict that.

No prediction needed. One could just keep taking a higher yield on 6M until 6M plummets, then cut over to 10Y at a later date.

martincmartin wrote: ↑Mon Mar 27, 2023 9:51 am Because they might want to access the money 1 month from now, and in that time, a 3M or 6M might be selling for less than purchase price +4.29%/12. Who knows, they could even be under water.

Well, as another poster also said, MMF is available at 4.45%. That's much more liquid than 1M. So 1M at 4.29% continues to be nonsensical.

martincmartin wrote: ↑Mon Mar 27, 2023 9:26 am The FFR is only available to banks. Neither retail investors nor fund managers can hold an asset which gets the FFR.

So your option is between a 1 month Treasury or a money market fund; if neither pays the FFR, the retail investor is out of luck for their "super safe" funds.

Well 3M and 6M are 4.8%-ish. While retail might not be able to get the FFR directly, it still doesn't answer why people would go for 1M at 4.29%.

Kenkat wrote: ↑Mon Mar 27, 2023 9:24 am You don’t but there sure is suddenly a lot of interest in short term bonds which I don’t recall seeing a lot of until rates went up. Why buy a 10 year bond yielding 3.5% when I can get 5% in a money market?

There is a reason and it’s good to spend some time thinking about what that reason might be.

I don't see issues wanting 5% in a money market over 10Y@3.5% to be honest. Some folks are looking at Ally's NPCD 4.75% for similar reasons.

See Dr. Pfau's study on SAFEMAX: https://retirementresearcher.com/the-sh ... he-4-rule/

Seems like 3.5% would be a reasonable number to use for UK.

martincmartin wrote: ↑Sun Mar 26, 2023 8:47 pm The Fed doesn't have a target for short term Treasuries, only for the Federal Funds Rate, which is what banks get when they loan to each other overnight.

The price of Treasuries is set through auction, by supply and demand.

Sure, but why would anyone settle for 4.29% when the FFR is 4.75%~5.00%? 3M and 6M being 4.8%-ish makes sense, but not 1M at 4.29%.

retiringwhen wrote: ↑Sun Mar 26, 2023 8:02 pm The bond market is way harder to time than the stock market. It just seems easier until you try to actually do it.

BTW, I don't think it is easy to time the stock market.

Why do you need to time the bond market? Bonds literally tell you how much you will earn over the course of duration when you buy them. You buy them if you like the rates, don't if you don't.

I currently hold a traditional BH 3-fund portfolio with US total market, US bonds and international fund. But with many large US based companies gaining a large revenue share internationally (such as Amazon, GE, Apple, IMB, Walmart, etc), can there be a substitute for the widely used international fund? Can the 3rd fund be one with US based companies that gain much of their revenue from countries that don’t utilize the dollar? If so, can anyone please point me in the direction of some funds that might fit this criteria so I can research them a bit more closely? And if this idea has flaws or anyone wishes to talk me out of going down this rabbit hole, please do so also. No substitute. If you want to own non-US companies, then you need to ow...

secondopinion wrote: ↑Wed Mar 08, 2023 9:26 pm Correct. And even if they can, the next question is whether they should have that much stock. It is a lot easier to say 90% stocks if one’s portfolio is 50x of their annual expenses rather than 5x.

I don't think it's related, since the 5x person is obviously still working. Then, there's no reason why it is more difficult to be 90% stocks.

I wish that this point were amplified more. Take a frugal person with modest expenses, say $25K/year. Suppose that this person has a $10M portfolio. What should be his stock allocation percentage? The ratio of net worth to annual expenses, I'd argue, is a larger factor, than age, or retirement-status, or even aversion to risk (provided that one does not panic). The usual business about "safe withdrawal ratio" doesn't apply. Neither do exhortations to save more, to buy on the dip, or really anything else about consumer behavior. With very large ratios, we have to think differently, from the standard tropes of consumer finance literature, or retail investment literature. And I suppose that one aspect of this, is willingness to embr...