Help me understand Portfolio Visualizer / Why hold cash at all?

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Dink2018
Posts: 57
Joined: Wed Sep 26, 2018 11:55 pm

Help me understand Portfolio Visualizer / Why hold cash at all?

Post by Dink2018 » Fri Jan 11, 2019 11:39 am

https://www.portfoliovisualizer.com/bac ... ion5_3=100

I'm looking to park some cash in taxable that I'm not sure what I'm going to do with, I need it to be relatively stable EG not lose more than 5% in any given 12 months even under pretty hard core financial global distress. Need this money for taxes, emergency fund, house down payment, etc.

Maybe I'm reading PV wrong but it looks like total bond market worst loss was 2-3% since 1988 or something like that. I can 100% live with that. I realize that the 2-3% is short term loss and doesn't could decades of inflation.

When I look at PV with the link above it seems like their cashx figure has a 3% positive return (is that because they are assuming money market funds so principle protection). So far in my life I've only had cash in checking and got zero return.

Just a hypothetical (assume a taxable account). Given how easy and liquid it is to buy VBMFX (Total Bond Market) and the track record compared to cash why not just use Total Bond market like a long term checking account.

Taxable has no limits so I could put in any amount, when I need to get cash out it is relatively stable, I don't think I'd really notice the fluctuations. I have enough cushion than a 3-5% a year flux wouldn't be an issue at all.

I guess I don't see a risk of doing this compared to just sitting in cash while I wait to pay taxes. EG if I don't pay quarterlies and I have 100k waiting in checking to pay uncle sam why not throw it into total bond while I'm waiting.

My preference would be to pay taxes every month but the government just isn't set up like that.

I'm trying to wrap my head around all this and it looks like if I do the following I can get a decent efficiency.

1: put all expenses on 2% cash back credit card (I've never paid interest in my life on a cc)
2: keep 2 months of revolving cash in checking (includes amount needed to pay tax deferred)
3: Dump the rest into taxable total bond market and NOT pay quarterlies so I get the benefit of holding my money longer in something likely to go up vs checking or paying the govt early.

If I get 2% cash back on my CC and lest say total bond gets 3% doesn't that put me in a 5% better position of all cash that flows through my accounts.

I'm trying to learn about "velocity banking" but it always winds up being some awkward pitch for life insurance. I can see where there are things to learn about velocity and return but I don't think those need to be connected to a high commission insurance product.

Any help or ideas?

livesoft
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Joined: Thu Mar 01, 2007 8:00 pm

Re: Help me understand Portfolio Visualizer / Why hold cash at all?

Post by livesoft » Fri Jan 11, 2019 11:45 am

Welcome to the "No-Cash" Club. The water is warm and pleasant.
Wiki This signature message sponsored by sscritic: Learn to fish.

Beehave
Posts: 560
Joined: Mon Jun 19, 2017 12:46 pm

Re: Help me understand Portfolio Visualizer / Why hold cash at all?

Post by Beehave » Fri Jan 11, 2019 12:03 pm

Assuming you can withdraw the amounts you want at the times you want, it's probably okay to do this. But I would not recommend it. If something devastatingly inflationary happens, you could be hit hard (e.g., Middle Eastern oil suddenly totally disrupted). I'd think that prudence dictates keeping some critical funds needed in the near-term FDIC-protected and that the portion that is put up at risk and is not FDIC-protected should be in a money market or maybe an ultra-short bond fund. The spreads are not that great between longer and shorter maturity bonds and the risk to fundamentally-needed assets just does not seem worth the reward to me.

Just my opinion - - best wishes.

stimulacra
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Joined: Wed Dec 21, 2016 3:50 pm
Location: Houston

Re: Help me understand Portfolio Visualizer / Why hold cash at all?

Post by stimulacra » Fri Jan 11, 2019 12:10 pm

In my head, cash and short term treasuries are pretty much interchangeable.

A possible alt could be Vanguard's short term bonds, VBISX, for lower volatility or Vanguard's municipal bonds, VWITX, for some tax-efficiency.

http://bit.ly/2Ce6moF

I like your overall cash strategy though.

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goingup
Posts: 3628
Joined: Tue Jan 26, 2010 1:02 pm

Re: Help me understand Portfolio Visualizer / Why hold cash at all?

Post by goingup » Fri Jan 11, 2019 12:26 pm

There are frequent trading policy restrictions on VBMFX. https://personal.vanguard.com/us/whatwe ... tionpolicy. If you want the liquidity of a checking account you'll need a ST bond fund or MM fund or to use ETFs.

lukestuckenhymer
Posts: 192
Joined: Wed May 30, 2018 11:53 am

Re: Help me understand Portfolio Visualizer / Why hold cash at all?

Post by lukestuckenhymer » Fri Jan 11, 2019 12:49 pm

Dink2018 wrote:
Fri Jan 11, 2019 11:39 am
keep 2 months of revolving cash in checking (includes amount needed to pay tax deferred)
I might recommend keeping more in cash. One day you may find yourself with an emergency situation that forces you to dip into your bond holdings.

I personally can't stomach losing principal on money that should be a true emergency fund. Keep in mind, past performance isn't indicative of future results. That Portfolio Visualizer represented a 30 year bull market in bonds that may not replicate itself.

pascalwager
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Joined: Mon Oct 31, 2011 8:36 pm

Re: Help me understand Portfolio Visualizer / Why hold cash at all?

Post by pascalwager » Fri Jan 11, 2019 6:32 pm

Retired, I keep a few years in cash in case the stock market crashes and stays there for a prolonged period. Also, it would cover a lesser few-months shutdown of the stock exchanges. This is discussed in The Balance where 5 to 20% cash is recommended, or 30% if fixed income is included. My cash earns about 2.3% right now.

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