The millionth question about what to do with cash.

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Allan
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The millionth question about what to do with cash.

Post by Allan » Sun Nov 02, 2014 8:10 am

I have substantial cash (very high 6 figure) in my IRA, as well as an equal amount in mutual funds and bond funds in same IRA. And I have non-IRA money in other investments. I am happy with my overall allocation and equity positions, I do not want to take substantial risk with the cash portion of my portfolio. I am 63. Any suggestions on what I should do with the cash portion? I have no plans to withdraw any of my IRA in the near future, other than mandated RMD at 70.

Allan

Sidney
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Re: The millionth question about what to do with cash.

Post by Sidney » Sun Nov 02, 2014 8:13 am

I'd consider looking at either CDs or individual TIPS depending on your tolerance for taking risk of unexpected inflation.
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livesoft
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Re: The millionth question about what to do with cash.

Post by livesoft » Sun Nov 02, 2014 10:09 am

Short-term corporate bond index fund. If that is too much risk, try a different short-term bond fund. There are about 7 or 8 of them at Vanguard, so you can exquisitely dial in your acceptable risk level either by choosing a single fund or mixing up a bunch of the funds.

However, considering that you profess no need for this money for more than 7 years, I don't understand at all what's really going on here. What's really going on here?
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Topic Author
Allan
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Re: The millionth question about what to do with cash.

Post by Allan » Sun Nov 02, 2014 10:22 am

livesoft wrote:Short-term corporate bond index fund. If that is too much risk, try a different short-term bond fund. There are about 7 or 8 of them at Vanguard, so you can exquisitely dial in your acceptable risk level either by choosing a single fund or mixing up a bunch of the funds.

However, considering that you profess no need for this money for more than 7 years, I don't understand at all what's really going on here. What's really going on here?
Thanks, great advice. I don't need to withdraw the money to live on for the foreseeable future, but currently I have the cash in a money market fund. I don't want to take the risk of equities with this money, but would like more than a 0 return.

Allan

dbr
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Re: The millionth question about what to do with cash.

Post by dbr » Sun Nov 02, 2014 10:44 am

If you don't want to invest the cash in equities, which is obviously sensible, then what is your objection to bonds? Is there some specific reason the money is in a money market and not in CD's, short bonds, intermediate bonds, whatever?

BenBritt
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Re: The millionth question about what to do with cash.

Post by BenBritt » Sun Nov 02, 2014 12:45 pm

Vwitx---intermediate term munis.It is working for me. Best of luck!

ralph124cf
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Re: The millionth question about what to do with cash.

Post by ralph124cf » Sun Nov 02, 2014 1:09 pm

BenBritt wrote:Vwitx---intermediate term munis.It is working for me. Best of luck!
Not the best choice in an IRA.

Ralph

BenBritt
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Re: The millionth question about what to do with cash.

Post by BenBritt » Sun Nov 02, 2014 1:49 pm

You are correct Ralph. I will read more carefully in the future.

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BigFoot48
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Re: The millionth question about what to do with cash.

Post by BigFoot48 » Sun Nov 02, 2014 3:17 pm

Although its not clear how it would fit with your allocation that you're satisfied with, I would put it in the Vanguard Total Bond Fund which has a current yield of 2.58% (SEC 1.99%). You have plenty of time to weather any short-term dip in the NAV should rates rise, while benefiting from the higher rates in the meantime.
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Re: The millionth question about what to do with cash.

Post by Lafder » Sun Nov 02, 2014 10:20 pm

Do you have taxable/non IRA savings?

If you really want to hold cash, would it make more sense to hold it in your taxable accounts ?

Are you not comfortable adjusting your AA to more bonds and investing the cash as part of your stock/bond portfolio?

I am not comfortable holding that much cash. But, if it is going to be that much cash I would at least want it FDIC insured. Otherwise it might as well be in bonds.

lafder

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Watty
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Re: The millionth question about what to do with cash.

Post by Watty » Sun Nov 02, 2014 10:40 pm

Sidney wrote:I'd consider looking at either CDs or individual TIPS depending on your tolerance for taking risk of unexpected inflation.
+1

A ten year(or so) TIPS ladder would be one possibility.

Ignatious P. Daily
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Re: The millionth question about what to do with cash.

Post by Ignatious P. Daily » Mon Nov 03, 2014 5:39 am

You want to take minimal risk. On the FI side that comes down to Term and Credit risk. I personally try to stick with very high quality issuance, and make my term risk less than my projected need for the funds. This would restrict your pool of options to those with a government guarantee, or AA+ rating, and a duration < 7 year.

I personally like the CD or individual TIPS option. Perhaps a TIPS ladder that starts at 5 years out and ends at 10 years out, combined with perhaps 20% - 30% allocation to short or intermediate term corporate bonds would work best?

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Bustoff
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Re: The millionth question about what to do with cash.

Post by Bustoff » Mon Nov 03, 2014 8:06 am

Allan wrote: ... I have no plans to withdraw any of my IRA in the near future ...
By "near future" do you mean 3-5 years, or longer? Can you be a little more specific?

john94549
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Re: The millionth question about what to do with cash.

Post by john94549 » Mon Nov 03, 2014 9:21 am

You might build a CD ladder, discussed

http://www.bogleheads.org/forum/viewtop ... 3#p2245378

and might consider an IRA CD with no EWP for partial withdrawals for those over 59 1/2, discussed a few posts below the post linked. Having both the IRA CD ladder and the dedicated IRA CD with no EWP allows you to "tap" (if necessary) without breaking your ladder. As noted in the other thread, you might look at StateFarmBank's 2.25% 5-yr IRA CD, which appears to be "best-in-class" in this category right now (no EWP for partials for >59 1/2).* Having a goodly portion in a bond fund (or funds) as well makes it easier to re-balance, if necessary.

*Synchrony's might offer a similar feature; I haven't personally reviewed their T+C, however. Based on a blog post by Ken Tumin, Synchrony allows you to "close", then "re-open", which might (or might not) be as good as a "partial". I've done two partials with SFB, no problems at all.

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Re: The millionth question about what to do with cash.

Post by jdb » Mon Nov 03, 2014 4:43 pm

BigFoot48 wrote:Although its not clear how it would fit with your allocation that you're satisfied with, I would put it in the Vanguard Total Bond Fund which has a current yield of 2.58% (SEC 1.99%). You have plenty of time to weather any short-term dip in the NAV should rates rise, while benefiting from the higher rates in the meantime.
+1. The average duration of Total Bond Fund probably less than your anticipated draw down dates for this IRA money, I would place in Vanguard Total Bond Fund and let it ride, which is what I am doing with mine.

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Re: The millionth question about what to do with cash.

Post by abuss368 » Mon Nov 03, 2014 5:14 pm

Allan wrote:I have substantial cash (very high 6 figure) in my IRA, as well as an equal amount in mutual funds and bond funds in same IRA. And I have non-IRA money in other investments. I am happy with my overall allocation and equity positions, I do not want to take substantial risk with the cash portion of my portfolio. I am 63. Any suggestions on what I should do with the cash portion? I have no plans to withdraw any of my IRA in the near future, other than mandated RMD at 70.

Allan
Hi Allan,

I would consider a good short or intermediate term bond index fund and stay the course. Bonds provide safety and income to a portfolio. A great fund to consider would be Total Bond Market Index Fund. This particular fund is low cost, diversified, no manager risk, monthly dividends, and holds thousands of individual bonds (many of which are Treasury bonds).

Unfortunately, cash is losing value to inflation by the day. Inflation is a risk to any portfolio. Inflation can especially be a greater risk to a retirees portfolio as they no longer earn wages that may be adjusted each year.

Please stop back with any additional questions or concerns you may have.

Best.
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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grap0013
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Re: The millionth question about what to do with cash.

Post by grap0013 » Mon Nov 03, 2014 5:25 pm

Allan wrote: Thanks, great advice. I don't need to withdraw the money to live on for the foreseeable future, but currently I have the cash in a money market fund. I don't want to take the risk of equities with this money, but would like more than a 0 return.

Allan
0 return nominal or 0 return real? You sound pretty risk averse and one cannot have one's cake and eat it too. Maybe I could convince you holding cash loses its value to inflation or I could convince you to buy bonds which could potentially go down a little in value. You sound like you wouldn't want this money to overtly go down in value so I say stay with cash my friend. Bonds yields are so low that 0 times anything is still 0. Which fixed income vehicle you choose just does not matter much.
There are no guarantees, only probabilities.

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Allan
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Re: The millionth question about what to do with cash.

Post by Allan » Mon Nov 03, 2014 8:32 pm

abuss368 wrote:
Allan wrote:I have substantial cash (very high 6 figure) in my IRA, as well as an equal amount in mutual funds and bond funds in same IRA. And I have non-IRA money in other investments. I am happy with my overall allocation and equity positions, I do not want to take substantial risk with the cash portion of my portfolio. I am 63. Any suggestions on what I should do with the cash portion? I have no plans to withdraw any of my IRA in the near future, other than mandated RMD at 70.

Allan
Hi Allan,

I would consider a good short or intermediate term bond index fund and stay the course. Bonds provide safety and income to a portfolio. A great fund to consider would be Total Bond Market Index Fund. This particular fund is low cost, diversified, no manager risk, monthly dividends, and holds thousands of individual bonds (many of which are Treasury bonds).

Unfortunately, cash is losing value to inflation by the day. Inflation is a risk to any portfolio. Inflation can especially be a greater risk to a retirees portfolio as they no longer earn wages that may be adjusted each year.

Please stop back with any additional questions or concerns you may have.

Best.
Thanks for all the responses. I have some Total Bond in my IRA now and it seems a logical move to buy more. As mentioned I do not need the money for at least 10 years. What are advantages/disadvantages of bond fun, CD ladder, TIPS.

Allan

john94549
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Re: The millionth question about what to do with cash.

Post by john94549 » Mon Nov 03, 2014 9:01 pm

Allan, I can't speak to TIPS, but having both a CD ladder (as I suggested) and TBM (ditto) is what I'd look into. Fixed-income investing is not an "either/or" proposition. Everything has its own "pros" and "cons". Some folks like CD ladders for their predictability; you shop around, get the best rate(s), build and roll your ladder, and you always know "exactly" what the ladder will be worth when the next rung matures. It's just math. Some folks hate CD ladders because, well, there's effort involved (albeit minimal, in my view). Some folks like bond funds because they're liquid, easy to use for re-balancing, and require no maintenance (you pay the fund manager for that). Others dislike bond funds because they lose value in a rising-rate environment (not a huge concern for me, since my horizon > duration) and they think they can "do better" with a CD ladder's yields as compared to the bond fund.

I see both points of view, hence my suggestion.

FWIW, I've never had a hard time getting a real rate of return on my CD ladder. Even today, you can get 55 bps over inflation in a 5-yr CD without much effort. If you ladder, and interest rates follow inflation, well, you get the drift.
Last edited by john94549 on Mon Nov 03, 2014 9:11 pm, edited 1 time in total.

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Allan
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Re: The millionth question about what to do with cash.

Post by Allan » Mon Nov 03, 2014 9:05 pm

john94549 wrote:Allan, I can't speak to TIPS, but having both a CD ladder (as I suggested) and TBM (ditto) is what I'd look into. Fixed-income investing is not an "either/or" proposition. Everything has its own "pros" and "cons". Some folks like CD ladders for their predictability; you shop around, get the best rate(s), build and roll your ladder, and you always know "exactly" what the ladder will be worth when the next rung matures. It's just math. Some folks hate CD ladders because, well, there's effort involved (albeit minimal, in my view). Some folks like bond funds because they're liquid, easy to use for re-balancing, and require no maintenance (you pay the fund manager for that). Others dislike bond funds because they lose value in a rising-rate environment (not a huge concern for me, since my horizon > duration) and they think they can "do better" with a CD ladder's yields as compared to the bond fund.

I see both points of view, hence my suggestion.

FWIW, I've never had a hard time getting a real rate of return on my CD ladder. Even today, you can get 55 bps over inflation in a 5-yr CD without much effort.
Thanks for the detailed response, this really helps.

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grap0013
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Re: The millionth question about what to do with cash.

Post by grap0013 » Tue Nov 04, 2014 8:15 am

Honestly, you should just read this book: http://www.amazon.com/gp/product/031235 ... 0312353634

A few bucks and a few hours. You'll get all the info. you need to make a good decision.
There are no guarantees, only probabilities.

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abuss368
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Re: The millionth question about what to do with cash.

Post by abuss368 » Tue Nov 04, 2014 8:50 am

Allan wrote:
abuss368 wrote:
Allan wrote:I have substantial cash (very high 6 figure) in my IRA, as well as an equal amount in mutual funds and bond funds in same IRA. And I have non-IRA money in other investments. I am happy with my overall allocation and equity positions, I do not want to take substantial risk with the cash portion of my portfolio. I am 63. Any suggestions on what I should do with the cash portion? I have no plans to withdraw any of my IRA in the near future, other than mandated RMD at 70.

Allan
Hi Allan,

I would consider a good short or intermediate term bond index fund and stay the course. Bonds provide safety and income to a portfolio. A great fund to consider would be Total Bond Market Index Fund. This particular fund is low cost, diversified, no manager risk, monthly dividends, and holds thousands of individual bonds (many of which are Treasury bonds).

Unfortunately, cash is losing value to inflation by the day. Inflation is a risk to any portfolio. Inflation can especially be a greater risk to a retirees portfolio as they no longer earn wages that may be adjusted each year.

Please stop back with any additional questions or concerns you may have.

Best.
Thanks for all the responses. I have some Total Bond in my IRA now and it seems a logical move to buy more. As mentioned I do not need the money for at least 10 years. What are advantages/disadvantages of bond fun, CD ladder, TIPS.

Allan
Hi Allan,

It is a question of how much simplicity or complexity do you want? Vanguard makes investing so simple at a very low cost with the Total Bond Market Index Fund. There is no need for managing a CD "ladder", Individual TIPS, etc.

Best.
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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Allan
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Re: The millionth question about what to do with cash.

Post by Allan » Wed Nov 05, 2014 6:22 am

grap0013 wrote:Honestly, you should just read this book: http://www.amazon.com/gp/product/031235 ... 0312353634

A few bucks and a few hours. You'll get all the info. you need to make a good decision.

Good suggestion.


Hi Allan,

It is a question of how much simplicity or complexity do you want? Vanguard makes investing so simple at a very low cost with the Total Bond Market Index Fund. There is no need for managing a CD "ladder", Individual TIPS, etc.

Best.
As 63 I want to simplify, I think I will take your advice. I also like that it is an extremely low cost fund. The 3 fund portfolio is where I am headed and the Total Bond fund is obvious.

mpowered
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Re: The millionth question about what to do with cash.

Post by mpowered » Wed Nov 05, 2014 10:23 am

I have been investing in bond funds. I am in a similar situation to you in that I have six figures subject to a PE call that I expect to be coming in the next few months. No way I am putting anything in equities with this volatility (even with the bull run we've been having over the past few years).

I still have an appetite for risk, so I look at high-yield funds such as the high yield muni bond fund VWALX, which has the added benefit of being tax free.

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