Cash Equivalent Investing

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clayr361
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Joined: Tue Aug 19, 2014 2:48 pm

Cash Equivalent Investing

Post by clayr361 » Fri Feb 27, 2015 1:45 pm

Sorry I know there are probably a lot of posts already out there for this. I am wondering what would be a good fund to put some extra cash in. I already have contributions for retirement and 529 taken care of. This money is in excess of an emergency fund and could even be part of my emergency fund. I have it sitting in a savings account at BOA right now making nothing. It is about $50K worth. I want something that is liquid if I were to need it sometime soon and not volatile. I am thinking about putting it in an Ally savings account which is making .99% right now but realize there is probably something better out there. Bonds, TIPS etc. are my weak spot on investing knowledge. I don't need it to make a high return (obviously the more the better) I just want it to make more than nothing like it currently is. I already put some money in a non tax advantaged account so this will not need to go towards that. I work in the oil and gas industry and it is getting a bit rough out there so I want to have this just in case I need it.

Any advice is appreciated.

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akblizzard
Posts: 124
Joined: Mon May 05, 2014 4:25 pm

Re: Cash Equivalent Investing

Post by akblizzard » Fri Feb 27, 2015 1:50 pm

I worked in oil & gas for many years. Life is different for guys like us. You didn't say how many months your emerg fund is currently, but I suggest using the $50K to add to your EF if you don't have at least 12 months. Ally is what I use. Good luck

Traveller
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Joined: Sat Jun 25, 2011 10:47 am

Re: Cash Equivalent Investing

Post by Traveller » Fri Feb 27, 2015 1:53 pm

You might consider I-Bonds directly from the treasury as they generate a return which will always keep up with inflation and currently beats Ally by a small margin. A few considerations are that they cannot be redeemed for the first 12 months, but can be any time after that. Also, you are limited in how much you can buy each year ($10k per person per year, plus there is a way you can get another $5k from a tax refund). You lose the last 3 months of interest if you redeem them within 5 years.

I have moved much of my cash reserves into this form over the past three years.

asif408
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Joined: Sun Mar 02, 2014 8:34 am
Location: Florida

Re: Cash Equivalent Investing

Post by asif408 » Fri Feb 27, 2015 2:20 pm

If you want a little more risk/reward than a high yield savings account or I-bonds you could consider a 20/80 or 10/90 stock bond portfolio, with 10-20% split between a total US stock market fund/total International stock market fund and 80-90% in a short term high quality bond fund (something like Vanguard's Short Term Bond Fund or Short Term Treasury Fund). I'm currently doing this with a portion of my EF. Just understand that you can potentially lose money, though it's unlikely you would ever lose more than a few percent in a bad year. I did some backtesting on this allocation and it held up pretty well in the last 2 bear markets (20/80 lost about 4% in 2008 and had low positive returns in 2000-2002) and performed well in down years for bonds (~5% return in 1999 and 2013). Of course, that would mean you could lose a few thousand dollars in a bear market for stocks. You have to decide if that is a risk you want to take. You could even try a 10/90 split if 20/80 is too aggressive. The 10/90 allocation had a positive return in all years, including 2008, but had a lower return overall.

I use Ally as my primary EF and I-bonds for my secondary EF. This 20/80 allocation is a 3rd tier EF that I don't plan to need but could in the next few years. I feel confident that even if I needed to tap it I wouldn't need all of it at one time, and most of it is in the short term bond fund which doesn't fluctuate in value much.

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avenger
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Joined: Mon Dec 02, 2013 12:11 pm

Re: Cash Equivalent Investing

Post by avenger » Sun Mar 01, 2015 7:52 am

Do you have a stable value fund in your employer-sponsored plan?

I keep all of my cash/short term needs in a stable value fund yielding 3.15% within my 457.
cheers ... -Mark | "Our life is frittered away with detail. Simplify. Simplify." -Henry David Thoreau | [3 fund portfolio: VTI, VXUS, SV fund (yield 3.01%)]

Seattlenative
Posts: 426
Joined: Fri Sep 12, 2014 11:23 pm

Re: Cash Equivalent Investing

Post by Seattlenative » Sun Mar 01, 2015 5:59 pm

clayr361 wrote:Sorry I know there are probably a lot of posts already out there for this. I am wondering what would be a good fund to put some extra cash in. I already have contributions for retirement and 529 taken care of. This money is in excess of an emergency fund and could even be part of my emergency fund. I have it sitting in a savings account at BOA right now making nothing. It is about $50K worth. I want something that is liquid if I were to need it sometime soon and not volatile. I am thinking about putting it in an Ally savings account which is making .99% right now but realize there is probably something better out there. Bonds, TIPS etc. are my weak spot on investing knowledge. I don't need it to make a high return (obviously the more the better) I just want it to make more than nothing like it currently is. I already put some money in a non tax advantaged account so this will not need to go towards that. I work in the oil and gas industry and it is getting a bit rough out there so I want to have this just in case I need it. Any advice is appreciated.

Unlike an FDIC insured bank deposit, share prices for bond ETFs fluctuate each and every day based on market conditions. Look at charts and SEC yields for a typical aggregate-bond ETF like BND or SCHZ. If you are looking at ETFs investing in short-term U.S. treasuries, yields will be even lower plus you'll still experience daily and intraday share-price fluctuation. At this time, don't waste your time with money-market mutual funds, again they will be far lower than Ally savings.

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