Bogleheads.org

You will need to be careful of splicing the data.

https://fred.stlouisfed.org/series/CD12NRNJ

https://fred.stlouisfed.org/series/NDR12MCD

I work with this stuff. I would not due it.

I suspect you want to sell covered calls because you want the cash now but you don’t want to sell now. i.e., the motivation is psychological and behavioral, not rationally economic. This tends to lead to a host of cognitive errors.

Lets ask the question differently. Let’s ignore the need for a new car because that is a separate issue. Why are you choosing at this time to leverage up your portfolio and increase the riskiness of your portfolio? Why not last year? Why not next year?

Delaying the pain now can tends to snowball into larger issues later. I would just sell.

Someone please correct me if I'm wrong, but I believe: 1. Your cash under $250k in a checking/savings account is guaranteed by the FDIC. https://www.fdic.gov/resources/deposit-insurance/brochures/insured-deposits/ 2. Your brokerage account is protected up to $500k by the SIPC. https://www.sipc.org/for-investors/what-sipc-protects 3. I am less sure about the money market funds, but there were reforms in 2010 and 2014 to improve them. The system is very robust. I have worked professionally all angles of this issue. 1. Yes. 2. Yes, but it really only comes into play when the brokerage collapses and has committed fraud. 3. Neither FDIC or SIPC prevents investment losses from fraud or poor results. All funds, including money markets, are funds....

Jack FFR1846 wrote: ↑Tue Mar 28, 2023 7:44 am If it's abandoned and you'd like someone to burn it down to be able to cheaply remove ashes and minimal burned wooden beams, then sure. Leave it uninsured. Just understand that if the arsonist trips on his way out and is injured, they're going to sue you and win the property, making your entire investment in it become zero.

Or ask to donate your house (but not the land) to the fire department. Where I live the fire department always burns down a few houses a year as a training exercise.

As I think about this more I think we need to acknowledge that at least to my understanding Direct CDs and Brokered CDs are different products. Possibly key among the differences as I understand them is Direct CD can almost always, if not always, be broken for some interest penalty if the holder is in need of the money now, whereas Brokered CDs can only be sold and if wasn't for their ability to be sold on a secondary market then there would not be anyway for a holder to get to their funds in an emergency. Again, anyone please correct me if I am wrong. Vaguely true. Strictly speaking to get a direct CD you need to walk into the bank. A brokerage must be done at a brokerage and is tradable. A brokerage can certainly issue a putable CD (a.k....

catnamedspot wrote: ↑Mon Mar 27, 2023 3:48 pm

chinchin wrote: ↑Mon Mar 27, 2023 3:38 pm CDs aren't very liquid compared to treasuries. I haven't heard of anyone that trades CDs.

Secondary Market https://investor.vanguard.com/investor- ... ary-market

First hand experience with this, CD markets are darn illiquid. Sure you can sell them at a super low price at any time.

"Teen" is a pretty wide range. At 19, required reading in my economics course was Random Walk (Malkiel) along with several early papers by Gene Fama. son turned 13. so not quite ready for that reading yet. Daughter is 16. Some of their friends at school made a "mock portfolio". So they wanted to learn more about stock picking, which I advised against. But I thought this may be an opportunity for them to learn the basics that will hold them in good stead in the long run. thanks So what is your goal? Basic financial literacy? I mean, balancing a check book, spend less than you earn, set up SMART goals, etc. If that, none of the above. Are we talking about Economics and Investment Theory? I got into that around 16. The lit...

Nver2Late wrote: ↑Mon Mar 27, 2023 12:13 pm "Against the Gods: The remarkable story of risk", by Peter Bernstein.

I typically recommend this book first, before getting into books that address direct investing advice.

I would second this. Nice easy read on the history of statistics.

Probably not.

In theory sure. The mechanics of this is mind boggling complex. The benefits are narrow.

I have heard of this happening in the 70s with 30 year mortgages when, thanks to inflation, the rate difference was over 10%.

Right, I shouldn't have referred to that as pure fiat. My original statement you replied to was about fraction reserves, and all those examples were under a fractional reserve system, and even had a lender of last resort during the depression. The Fed really wasn't a lender of last resort until the banking act of 1935. Wikipedia: The Federal Reserve Act [1913] created the Federal Reserve System, consisting of twelve regional Federal Reserve Banks jointly responsible for managing the country's money supply, making loans and providing oversight to banks, and serving as a lender of last resort . I'm sure the 1935 act consolidated these powers, but they began in 1913. Note: what existed prior to that in 1912 had its own issues. I'm not aware o...

CuriousTacos wrote: ↑Sat Mar 25, 2023 11:34 am Right, I shouldn't have referred to that as pure fiat. My original statement you replied to was about fraction reserves, and all those examples were under a fractional reserve system, and even had a lender of last resort during the depression.

The Fed really wasn't a lender of last resort until the banking act of 1935.

As a follow up... While Basel III contains some stricter requirements in direct response to 2008, the bias towards government securities means that banks are doing even less to lend to businesses that can generate wealth. I'd much rather have a bank take term deposits and loan a good portion out to local businesses, than take demand deposits and use almost all of them to buy long dated government-backed securities. But the regulations encourage the latter much more than the former. I am going to be throwing out lots of high level concepts. Let me know if you want me to dig deeper into any of them. For a little context, this is kind of my day job and my undergrade was in Economic History of the US and the History of 19th Century US Thought ...

CuriousTacos wrote: ↑Sat Mar 25, 2023 9:35 am Those were all fractional reserve banks with government fiat. The ones in the great depression were even after the creation of the Federal Reserve.

US was on the gold standard. A nice safe hard currency which causes help exaggerator the problem.

To extend, Plato argued that money is a special type of bond created by a social contract. As such, all money is fiat money. I support this idea.

I firmly believe in the theory behind ERP.

That being said, the actual mathematical calculation is a art. As such it has error bars.

I don’t exactly know what you mean by “bad actors”. I believe that the market is highly efficient. As such there is little room for bad actions, and as such would fall within the error bars.

Adding value does not increase your diversification. Or maybe it does if you go deep in the math and chuck many Boglehead assumptions. We can start with the neutral portfolio, total market l, which is 50% growth and 50% Value. Then lets say we shift our portfolio to 50% total market and 50% value. Of course if we look under the hood we can see we are holding 33% growth and 67% value. If you want I can lead you down the math but it should be obvious why you are not diversifying but the opposite. I personally don't make the strong public claim that factors "diversify", but factor proponents do under the rubric of "sources of return." But you know that, it's an old debate side note: I don't recall exactly the FF definition...

I found this post that tries to estimate SVB's LCR from their 2022 Q4 reports and suggests that it's hard to say whether it would have raised flags. But since this metric counts long and short term treasuries the same (both at FMV), they would have easily passed before their bonds dropped too much. So this metric clearly doesn't prevent banks from taking excessive interest rate risk in the first place. … There are many interpretations of this, but it clearly runs deeper than the 2018 modifications to Dodd-Frank or even US politics since I don't see how the Basel III framework would have prevented this. Maybe regulators across the world know exactly what needs to be done but keep losing to bank lobbies. But that would just reinforce my opin...

Short answer is no. Sequence of Risk returns are tied to volatility. Value stocks have equal or higher volatility than the total market. shouldn't the question be when in the market cycle the volatility occurs? I think so. I'm not a fan of the academia around factors.. However, from a macro point of view, I do think a value tilt (even as much as 50:50 MCW and Value) probably improves SoR risk. Firstly, value acts as a way to tilt a portfolio away from speculative bubbles.. It worked in 2000, and I believe it worked well during Japan's market crash(?). Also, with a market focused on short-term earnings and manager performance (from 3 months to 3 years), value stocks can be a form of time-arbitrage, where you get to buy things cheaper than s...

Your version of SOR risk is solved by 1) not investing 2) owning assets with little to no expected returns That's simply not what anyone cares about. We want to manage SOR risk while still meeting other objectives. Your definition is totally unactionable - we need to look at SORR in the context of a reasonable retirement plan. If you are excluding value purely because it is volatile you don't understand investment risks properly. We would exclude stocks for bonds the same reason, and taken one step further we would exclude investing altogether because investing involves risks which translate to volatility in pricing. The goal of investing is usually to manage risks while also seeking return. For this purpose you generally don't simply inve...

Adding value does not increase your diversification. Or maybe it does if you go deep in the math and chuck many Boglehead assumptions.

We can start with the neutral portfolio, total market l, which is 50% growth and 50% Value. Then lets say we shift our portfolio to 50% total market and 50% value. Of course if we look under the hood we can see we are holding 33% growth and 67% value.

If you want I can lead you down the math but it should be obvious why you are not diversifying but the opposite.

Short answer is no. Sequence of Risk returns are tied to volatility. Value stocks have equal or higher volatility than the total market. +1 Many posters on BH have commandeered the term “Sequence of Returns” risk and now use it to pretty much mean “any risk that prevents my portfolio from lasting 30 years”. I would recommending reading one of the many diversification threads. Even assets with 0.8 correlation can help reduce the worst case outcomes. It doesn't even matter if correlations go to 1.0 in a crisis, you have removed the worst outcome of only owning the one that performs worst. It depends on the specifics of the crisis which asset that will be. Exactly. The best way to minimize SW risk is to be thoroughly well-diversified in both ...

muffins14 wrote: ↑Fri Mar 24, 2023 11:17 am

alex_686 wrote: ↑Fri Mar 24, 2023 11:10 am Short answer is no.

Sequence of Risk returns are tied to volatility. Value stocks have equal or higher volatility than the total market.

But they are not perfectly correlated. It’s not like you’re taking the same time series of peaks and valleys and only magnifying them

Yeah, but value is a sub-set of total so it doesn’t work like that.

In a more general sense, for your statement to be correct you would need a fairly low correlation between the 2 asset classes, and in times of crisis (where SoR is the highest) the downward correlations tend to increase.

Short answer is no.

Sequence of Risk returns are tied to volatility. Value stocks have equal or higher volatility than the total market.

I guess two gotchas is that once you have a margin account you open up two possibilities that cash accounts don't have. 1) Sometimes the broker might lend your shares. This might be in the agreement to open the margin account or it might be a separate thing. I know Robinhood Gold bundles them together but other brokers keep them separate. I don't know which Fidelity does -- I assume they keep them separate, though -- but you can check for this. 2) When you have a margin account you are subject to rehypothecation risk. Personally I don't think it is something you need to worry much about, especially given the usages you describe. But you still might be curious. Here's a page explaining it: https://www.thebalance.com/rehypothecation-investme...

exodusNH wrote: ↑Fri Mar 24, 2023 7:54 am

aristotelian wrote: ↑Thu Mar 23, 2023 5:53 pm Yes, but if there was a run it would be a run on the system. And FDIC would have 10X the liability. It does seem like a good idea.

But unless everyone were running into the likes of JP Morgan or to currency, the money would probably just slosh around.

If it us moved into money market mutual funds it can be deposited at the Fed, removing the money from the pool. I mean, the money has sloshed out of the pool.

So I am super familiar with how things work in the US. The fund is a separate entity - at least in the US. In theory nothing should happen to the fund if the sponsor blows up. At least in the US the controls are super robust. The fund then enters a series of swaps with other banks. These banks are the counterparties. These may or may not be the sponsoring bank. If the swaps are centrally cleared then the risk is with the CCP. As such m, super safe. If the CCP goes bankrupt that means a massive banking crisis that we last saw in the 1930s. You will have bigger fish to fry at this point. If not, then the counter party risk lays with the other bank. I strongly suspect that they need to deposit margin and collateral, so that should kind things ...

If it is this easy to spread your funds around and get 10x insurance, they should just require every bank to do it and then insure everyone up to $2M. That would reduce risk to any particular bank but would it create systemic risk? I would argue it reduces it because it would mean a lower chance of a run. Yes, but if there was a run it would be a run on the system. And FDIC would have 10X the liability. It does seem like a good idea. For context, The Fed has different liquidity requirements on different types of accounts. This is “hot money”. i.e. money that can leave the bank quickly from clients with a thin relationship. i.e. more prone to a run. The Fed discourages that. Having higher liquidity requirements is another way of saying lowe...

I'm surprised every modern bank hasn't figured this out by now. I am also surprised the FDIC allows it. I am not sure how much this differs from say CDARS. The more surprising thing to me is the FDIC requires people too jump through hoops for this insurance. Seriously, banking needs to be safe and secure for the system to work, the idea that people with deposits over a certain amount need to constantly try to crawl through their regulated bank's balance sheet to determine if their deposits are safe is ridiculous. If it is this easy to spread your funds around and get 10x insurance, they should just require every bank to do it and then insure everyone up to $2M. That would reduce risk to any particular bank but would it create systemic risk...

You could just ask them to split the mutual fund 50/50 between the 2 accounts and let them figure it out. I was asked to do that many times when I worked in Custody.

Agent 99 wrote: ↑Thu Mar 23, 2023 3:33 pm Found the Terms and Conditions - SOFI bank acts as customer’s authorized agent in shuffling the funds around. I don’t think I like this.

Why not? If you want to have something greater than 250k FDIC insurance how do you think you should go about it?

aristotelian wrote: ↑Thu Mar 23, 2023 3:18 pm I'm surprised every modern bank hasn't figured this out by now. I am also surprised the FDIC allows it.

This has been around for a long time. Bank failures are rare, impacts are low (most of the time there is sufficient equity and bond holdings tranches to absorb any liquidity), and the costs or running this type of plan is high.

So, how much in liquidity and rates are you willing to gove up for a bit more insurance.

I don’t see the difference of being covered by each bank up to the FDIC limit by having accounts at multiple banks. If one has 250k at each of the banks then they are insured to 3.25M (edit corrected). I don’t get it. Any ideas? From SOFIs FAQs How can you offer more FDIC insurance than most banks? ... Q: What if I already have an account at one of SoFi’s partner banks? - For purposes of insurance, the FDIC aggregates deposit balances of each customer held in the same insurable capacity at a particular bank (e.g., individual, joint, IRA, corporate). If you have an outside account with one of SoFi’s partner banks, the funds in that account will also count towards your total eligible FDIC insurance at that particular bank ($250K for individu...

TheTimeLord wrote: ↑Thu Mar 23, 2023 9:18 am

DeliberateDonkey wrote: ↑Thu Mar 23, 2023 12:46 am Yes, it is safe.

I would go so far as to say that VTSAX is systemically important.

I am not sure what your point is here, a mutual fund is not a bank it is a collection of stock holdings owned by shareholders.

FYI, regulators have been dancing around this question. They think the big mutual fund complexes and funds are systemically important. What this will actually translate into nobody knows..

bloom2708 wrote: ↑Thu Mar 23, 2023 9:00 am Facebook Marketplace?

The kid will likely outgrow it in 3-4 months.

Garage sale, thrift store. Buying a "nice/quality" bike at that age is not needed unless more kids are coming up below.

Also, you can add training wheels to virtually any bike.

I will second this.

Mutual funds are very safe and they have robust safeguards. This was my job for a while.

enad wrote: ↑Thu Mar 23, 2023 12:54 am Vanguard is different from other asset management firms. Vanguard is owned by its member funds, which in turn are owned by fund shareholders. With no outside owners to satisfy, Vanguard's focus is squarely on meeting the investment needs of their clients.

But not this. This doesn’t matter, and doesn’t make the funds more or less safe.

In the case of a money-market fund, those assets are Treasury bills, which do not lose value. A shareholder with $1M in assets can withdraw them by requiring the fund to sell 1/1000 of its Treasury bills, which can be sold for face value and will thus give the shareholder $1M. This is false and misleading. The NAV of the fund is the NAV of the fund. T-bills are priced at a discount and if sold would be sold at that discount, not par. T-bills routinely lose money over the short term. Well, the very short term. You can’t force a fund to sell above the limits in the prospects. I have worked besides the mutual fund trading desk where the can say no to large or late trades. You maybe could argue for a in-kind distribution but those are not easy...

I work with this stuff on both sides of the issue. Me and my colleagues have a long running debate over this issue. A critical take away is that professionals can argue over mole hills. The differences between these very safe products are nuanced and situational. I wouldn’t lose any sleep over it.

I don’t have time got a full recap, but I will start here since it is all variations on a theme. I would start by recasting your goals. Note, I have had formal training in this area. I have had to work at a high level coding systems. This is not a criticism of anything you have written. Rather a rewriting so we actually cast this into some formal logical. You're making a lot of assumptions with just this paragraph. In any case, this is the high-level description of portfolio functions, not all of the details. I'm certainly not going to answer in detail about any of this. Start by striking the liability matching. That is not a goal, that is a portfolio building technique. Maybe it turns out that liability matching is the best option for you ...

If a CFo can't understand that uninsured deposits aren't insured I don't know why they are a CFO. If it's not the CFO's job then it's the treasurer's. Or the accountant or bookkeeper or whoever is putting the money into the account but understanding that money that is uninsured is not insured is not a difficult concept. Maybe some companies need to have more than $250k cash on hand? I think the fact that so many companies were caught offsides by the current situation suggests that cash management, even for more established companies, isn't as straightforward as you make it seems. That or the corporate world is just full of incompetent CFOs and treasurers It’s not taught in school, so folks are learning this on the job. If you’re a start up...

This has been on my mind as well. How do responsible companies manage this? I work for a $8B revenue company that at one point I heard had a payroll of nearly $3B. While not all was US, it would imply that its biweekly payroll was somewhere around $100M. To stay under FDIC limits would require 400 banks! Or do big companies just go with big banks that are "too big to fail"? They don't have all $100M in a business checking account at BoA. It's constantly moving around in short term commercial paper and other highly liquid instruments, some of which are routinely turned over every day to meet various payroll or accounts payable needs. Yeah, but even at that it does mean a few days with really big balances. As I said above, this is ...

Banks.

Ok, it is slightly more complex than that, but not much. Banks often have money centers, which offer savings and tine accounts at negotiable rates, money market mutual funds, and Treasuries. There is a trade off between rates, liquidity, and complexity.

Most businesses will find themselves constantly above the 250k FDIC limit. No way around that. I would be relaxed about that.

I wouldn’t take it as a negative or positive sign that they had large amounts of cash in the bank.

This is fantastic and I have always appreciated your insight on the forum. However, I know I need to do the roof and paint the house in a little under 3 years. Therefore, I put it in a treasury yielding 4.8 with a small coupon maturing around that time. In my opinion, that is the definition of liability matching. Do I think the market will be higher by then? Probably. Do I explicitly know I need that principal then? Yes! So, is that as you say "putting the horse before the cart?" Maybe it is a bigger chunk of the portfolio and therefore I chose to not put it in equities? I was under the assumption that 0-5 years out (per the wiki) should be in safer assets. The wiki is about simple rules, heuristics, and being risk adverse. I am ...

Honestly, expected this conversation to be more about the concept of "Mental Accounting" and how we label (classify) certain types of assets. I honestly haven't been able to follow the intent of what is being discussed. One of the things I find frustrating on this forum is the inability to agree on common terms and definitions. Without that it is really impossible to have useful and profitable conversations, shared terminology is key to shared understanding imho. The problem is that the question is about a "emergency fund", which is a form of mental accounting. It is a cognitive error. i.e. the brain is taking a hard problem and breaking it down into simpler fuzzy problems that better fit our heuristic method of thinkin...

I tend to view it as liquidity. Maybe 9 months expenses in bank cash and another couple of years worth in ibonds. I don’t view it as irrational to have a fixed stack of cash or cash equivalents. Some will say “mental accounting”, but that presumes an individuals risk aversion curve will always dictate the same asset allocation whether one has $100,000 or $1 million. By setting a hard minimum, via a fixed emergency/liquidity fund when the value of your portfolio goes down, your stock allocation will decrease if looking at entire net worth. That isn’t optimal for long term growth but it does provide a safety cushion. It is very plausible for a 60 year old to have a risk aversion based optimal asset allocation of 0/100 at $100k, 50/50 at 1 mi...

The regulations say you must show 10 years. That way you can easily compare 2 different funds from 2 different families. If from inception then every comparison would be unique.

I can see the emotional appeal for showing 10 year returns. As someone who has actually worked and used them I would value their effectiveness as somewhere between mildly educational to deeply misleading. Historically returns have little to do with future ones.

Allow me a option of something other than 10 years and I can manipulate it to show just about anything.

I tend to view it as liquidity. Maybe 9 months expenses in bank cash and another couple of years worth in ibonds. I don’t view it as irrational to have a fixed stack of cash or cash equivalents. Some will say “mental accounting”, but that presumes an individuals risk aversion curve will always dictate the same asset allocation whether one has $100,000 or $1 million. By setting a hard minimum, via a fixed emergency/liquidity fund when the value of your portfolio goes down, your stock allocation will decrease if looking at entire net worth. That isn’t optimal for long term growth but it does provide a safety cushion. It is very plausible for a 60 year old to have a risk aversion based optimal asset allocation of 0/100 at $100k, 50/50 at 1 mi...

Geologist wrote: ↑Tue Mar 21, 2023 1:27 pm If there is an important change between annual prospectuses (for example, there is a manager change), then a supplement will be produced and this is generally placed at the beginning of the existing prospectus if you download it.

Annually.

Usually a addendum is only added because there was a major material defect. They are very expensive to do.

quantAndHold wrote: ↑Tue Mar 21, 2023 11:46 am A Scamp is quite a bit more trailer than OP claims he wants. It has water and waste tanks, for one thing.

Ours does not have black water. You can even skip the grey water tank. Almost any camper that can sleep 4 and has a kitchen will have a grey water tank. Not all, but then you are looking at some off models. (Not odd as in bad, but odd that very few are looking for those features).

That being said, squeezing in 4 is a bit of a challenge. IIRC the top bunk is ratted at 110 pounds and the bottom is a bit claustrophobic. Our young child doesn’t seem to mind.

technovelist wrote: ↑Tue Mar 21, 2023 10:22 am Yes, if there hadn't been a bank run, SVB would have been fine (we assume).

We don't assume that. The balance sheet was showing the stress of the duration mismatch. The probably colipase was written on the wall. The bank run just sealed the deal.

You may not need all the features, but they tend to come with all the features, whether you want them or not. That all has a cost, and is why stuff is so expensive. I mean if you want no bathroom, no water, and a minimalist kitchen, that sounds a lot like a tent to me. Well, what does one want? The problem with cars, houses and RVs is that it is so tempting to buy more than what you need. Is a fiberglass egg basically a hard sided tent? Sure. Ours doesn't even have a AC, but it does have a heater. The point of RVing in our case is to spend time outside, not inside. For my wife it is important to have a reliable good and dry bed. So the add ons are not that important. Since Scamps are so simple they tend to hold their value pretty well. We ...

If you’re just looking to get up off the ground, a pop up trailer is probably going to give you the best bang for buck. Friends we travel with have one. They’ve been everywhere in it. It’s not luxurious, but plenty of space for a family and they can tow it with their midsize SUV. The problem with anything in the “small RV” space is that they all have to have the same stuff in them as larger RV’s, except in miniature, to fit it in the small space. Which makes it expensive. Often, the small ones are more expensive than larger ones for that reason. The problem with a pop-up is durability, which is sub-par. The roofs are known to leak after a few years. I will modestly disagree with the small RV point. Do you need all of the features of a larg...