Alternatives to Cash

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
User avatar
Topic Author
Doc
Posts: 9240
Joined: Sat Feb 24, 2007 1:10 pm
Location: Two left turns from Larry

Alternatives to Cash

Post by Doc » Sun Dec 01, 2019 12:39 pm

With the very low money market rates the last few years many people have been going to CDs as an alternative. I've never thought of CD's as "cash like" because it may take several days to get the money into my bank account and I if it is "cash" I need it by tomorrow. Also CD's may have a penalty involved for early "liquidation". Recently I've been using a couple of 6 month T-Bills with maturities staggered 3 month apart as an alternative or an ultrashort fund at Vanguard. Rolling the T-Bills every 3 months is something of a PITA and care needs to be taken with the ultrashort fund to avoid wash sales.

There was an article on Seeking Alpha Friday with another alternative. "PIMCO Enhanced Short Maturity Active ETF: A 'Better Than Cash' Alternative" https://seekingalpha.com/article/430973 ... lternative

Looking at Morningstar's Analysis for MINT it looks very good. Other alternatives mentioned: "MINT's closest competitors include Invesco Ultra Short Duration Bond ETF GSY, iShares Short Maturity Bond ETF NEAR, and First Trust Enhanced Short Maturity ETF FTSM." https://www.morningstar.com/etfs/arcx/mint/analysis (Premium article.)

Any thoughts on these ETF alternatives or any other ideas like maybe brokered CD's?
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

jebmke
Posts: 9835
Joined: Thu Apr 05, 2007 2:44 pm

Re: Alternatives to Cash

Post by jebmke » Sun Dec 01, 2019 12:44 pm

I have stuck with my Limited Term Tax Exempt Fund in lieu of cash. Over the long haul (last 10 years), it has done at least 100 basis points above money market funds and the return is tax exempt at the federal level. Pretty low volatility.
When you discover that you are riding a dead horse, the best strategy is to dismount.

livesoft
Posts: 68579
Joined: Thu Mar 01, 2007 8:00 pm

Re: Alternatives to Cash

Post by livesoft » Sun Dec 01, 2019 12:47 pm

You won't get the cash from selling ETFs "by tomorrow" as the settlement time is T+2, right? You might get it with a mutual fund though or with a margin account.
Wiki This signature message sponsored by sscritic: Learn to fish.

User avatar
nisiprius
Advisory Board
Posts: 39439
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Alternatives to Cash

Post by nisiprius » Sun Dec 01, 2019 12:56 pm

Sneak peek, "coming attractions:"
Using mutual funds and ETFs for short-term savings (1 year): MINT

Similar statistics for 6-month holding periods:

MINT: PIMCO Enhanced Short Maturity Active
1/2010 - 6/2019; 114 months total
(limited by start of available data for MINT, and by end of available data for CPI data):

Length of holding period: 6 months
Total number of overlapping 6-month periods: 109
Average/median number of dollars earned in 6 months on a $10,000 investment: $70.76 (average), +$78.89 (median)
Average CAGR (annualized rate of return) of those 109 6-month periods: 1.42%
Standard deviation (σ) of single-month returns, annualized: 0.47%

Frequency and severity of disappointment:
Number of periods in which MINT made less than VMMXX: 12/109 = 11.0%
Average/median shortfall versus VMMXX over those 12 periods: -$17.29 (average), -$7.25 (median)
Number of periods in which MINT lost money: 4/109 = 3.7%
Average/median dollar loss over those 4 periods: -$37.22 (average), -$36.26 (median)
Number of periods in which MINT failed to keep up with inflation: 58/109 = 53.2%
Average/median real loss (inflation-corrected) over those 58 periods: -$77.90 (average), -$48.84 (median)

Worst single 6-month performance:
Compared to VMMXX, 6/2011 - 11/2011: -$53.76
Dollar loss, 6/2011 - 11/2011: -$52.29
Real loss (inflation-corrected), 12/2010 - 5/2011: -$241.67

Reward for taking that risk:
Average/median additional return above VMMXX, over 109 overlapping 6-month periods: +$46.66 (average), +$43.63 (median)
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

User avatar
Watty
Posts: 17606
Joined: Wed Oct 10, 2007 3:55 pm

Re: Alternatives to Cash

Post by Watty » Sun Dec 01, 2019 1:05 pm

Doc wrote:
Sun Dec 01, 2019 12:39 pm
I've never thought of CD's as "cash like" because it may take several days to get the money into my bank account and I if it is "cash" I need it by tomorrow.
I would be real hard pressed to think of any reason I might unexpectedly need more than a couple of thousand dollars in cash by tomorrow.

Most emergencies, like an unexpected flight to see a sick relative, can be paid for with a credit card. I also have a home equity line of credit that I can write a check on.

HEDGEFUNDIE
Posts: 3645
Joined: Sun Oct 22, 2017 2:06 pm

Re: Alternatives to Cash

Post by HEDGEFUNDIE » Sun Dec 01, 2019 1:06 pm

nisiprius wrote:
Sun Dec 01, 2019 12:56 pm
Sneak peek, "coming attractions:"
Using mutual funds and ETFs for short-term savings (1 year): MINT
VFIIX looks like the clear winner there.

I'm sticking with my Orion credit union account for now, which is paying 2.3% blended on my $50k.

User avatar
Topic Author
Doc
Posts: 9240
Joined: Sat Feb 24, 2007 1:10 pm
Location: Two left turns from Larry

Re: Alternatives to Cash

Post by Doc » Sun Dec 01, 2019 1:08 pm

livesoft wrote:
Sun Dec 01, 2019 12:47 pm
You won't get the cash from selling ETFs "by tomorrow" as the settlement time is T+2, right? You might get it with a mutual fund though or with a margin account.
Right. You maybe get it next day from a MM settlement account. Treasuries are T+1 and ETFs T+2. I use margin to get T+1. Sometimes T+0 if I am willing to pay one day's interest. The margin doesn't work with CD's unless brokered. I don't know what the settlement is no brokered CDs.
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

User avatar
Topic Author
Doc
Posts: 9240
Joined: Sat Feb 24, 2007 1:10 pm
Location: Two left turns from Larry

Re: Alternatives to Cash

Post by Doc » Sun Dec 01, 2019 1:12 pm

nisiprius wrote:
Sun Dec 01, 2019 12:56 pm
Sneak peek, "coming attractions:"
Using mutual funds and ETFs for short-term savings (1 year): MINT

Thank's Nisi I'll take a good look but I don't think you addressed what I consider "cash".

"Nisiprius/Using mutual funds and ETFs for short-term savings (1 year) compares historical performance of similar funds that are appropriate for short-term savings."
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

7eight9
Posts: 436
Joined: Fri May 17, 2019 7:11 pm

Re: Alternatives to Cash

Post by 7eight9 » Sun Dec 01, 2019 1:13 pm

Watty wrote:
Sun Dec 01, 2019 1:05 pm
Doc wrote:
Sun Dec 01, 2019 12:39 pm
I've never thought of CD's as "cash like" because it may take several days to get the money into my bank account and I if it is "cash" I need it by tomorrow.
I would be real hard pressed to think of any reason I might unexpectedly need more than a couple of thousand dollars in cash by tomorrow.

Most emergencies, like an unexpected flight to see a sick relative, can be paid for with a credit card. I also have a home equity line of credit that I can write a check on.
When you need to get out of town fast. However gold would probably be more useful in that scenario.

Payment had to be made in advance, in pure gold, and rates varied according to age and time and place of departure. Children under the age of five didn’t have to pay anything. For those six to sixteen, in order to get things started, three and a half ounces of gold had to be paid. For those nineteen to ninety-nine years old, it cost six ounces of gold. To this had to be added a bribe of five ounces for corrupt officials who supplied false safe-conduct passes for travel within the country.
https://www.rollingstone.com/culture/cu ... rs-100426/
I guess it all could be much worse. | They could be warming up my hearse.

User avatar
Topic Author
Doc
Posts: 9240
Joined: Sat Feb 24, 2007 1:10 pm
Location: Two left turns from Larry

Re: Alternatives to Cash

Post by Doc » Sun Dec 01, 2019 1:16 pm

Watty wrote:
Sun Dec 01, 2019 1:05 pm
I would be real hard pressed to think of any reason I might unexpectedly need more than a couple of thousand dollars in cash by tomorrow.
Happens all the time. I'm rebalncing and I want to sell 100 shares of XYZ and buy 100 shares of ABC and I am a couple three $k short. Being out of the market for two or three days is "iffy".
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

User avatar
jeffyscott
Posts: 8267
Joined: Tue Feb 27, 2007 9:12 am
Location: Wisconsin

Re: Alternatives to Cash

Post by jeffyscott » Mon Dec 02, 2019 10:33 am

Doc wrote:
Sun Dec 01, 2019 12:39 pm
...care needs to be taken with the ultrashort fund to avoid wash sales.
Why would wash sales matter? Isn't that just related to whether or not you get to take a tax loss (which would later be offset by a larger tax gain, anyway). Or do you mean the restriction on being able to buy after selling?

I've left some money in an account with my former employer in order to continue with the stable value fund for a while longer. Getting a net yield of ~2.5% from that, may even look into rolling more into that account next year, if things stay as they are.
Time is your friend; impulse is your enemy. - John C. Bogle

User avatar
Topic Author
Doc
Posts: 9240
Joined: Sat Feb 24, 2007 1:10 pm
Location: Two left turns from Larry

Re: Alternatives to Cash

Post by Doc » Mon Dec 02, 2019 11:26 am

jeffyscott wrote:
Mon Dec 02, 2019 10:33 am
Doc wrote:
Sun Dec 01, 2019 12:39 pm
...care needs to be taken with the ultrashort fund to avoid wash sales.
Why would wash sales matter? Isn't that just related to whether or not you get to take a tax loss (which would later be offset by a larger tax gain, anyway). Or do you mean the restriction on being able to buy after selling?
Avoiding the wash sale is just a bookkeeping issue. The new buy restriction is something I haven't considered. It's unlikely to be a deal breaker.
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

not4me
Posts: 686
Joined: Thu May 25, 2017 3:08 pm

Re: Alternatives to Cash

Post by not4me » Mon Dec 02, 2019 12:58 pm

Doc wrote:
Sun Dec 01, 2019 12:39 pm

Any thoughts on these ETF alternatives or any other ideas like maybe brokered CD's?
I'll start with the 2nd part first -- that is, "other ideas". imho, this is as good an example of an area in which there won't be a 'free lunch' opportunity. All have potential flaws & trade-offs. Trade-offs between liquidity, effort, flocks of black swans, return drags etc. So, the investor needs to make the tough decisions upfront as to which is most important in their situation & then proceed accordingly.

So, the 2nd part -- "ETF alternatives". One point I didn't see raised was possible discount/premium. IF the scenario you are planning for where you need a couple three $k by tomorrow & the environment is that liquidity disappeared, then if you can sell the etf it may require accepting a hefty discount. I didn't really look at any of the links on MINT, but did check their premium/discount charts. Happened to be the 3q19 chart & all within the -0.49 to +0.49 range. But, 18.75% of days it had a discount. So again, tradeoff that works for you might not for someone else

bck63
Posts: 711
Joined: Fri Sep 28, 2018 4:59 pm

Re: Alternatives to Cash

Post by bck63 » Mon Dec 02, 2019 5:58 pm

HEDGEFUNDIE wrote:
Sun Dec 01, 2019 1:06 pm
nisiprius wrote:
Sun Dec 01, 2019 12:56 pm
Sneak peek, "coming attractions:"
Using mutual funds and ETFs for short-term savings (1 year): MINT
VFIIX looks like the clear winner there.
FWIW, ishares has a GNMA ETF. Duration is 2.08 years. ER is lower than VFIIX (0.15% net) but the yield is a bit lower (2.24% vs 2.39%).

RAchip
Posts: 382
Joined: Sat May 07, 2016 7:31 pm

Re: Alternatives to Cash

Post by RAchip » Tue Dec 03, 2019 6:33 am

I think the best place to hold a material amount of “cash” is vmmxx or vusxx (if state tax free helps you). There is no true substitute for a good money market fund. Short term bond funds have principal risk. Reaching for yield on “cash” is a mistake. Just put it in vmmxx and forget it. Trying to get capital gains on cash is not investing cash to hold cash.

Dandy
Posts: 5999
Joined: Sun Apr 25, 2010 7:42 pm

Re: Alternatives to Cash

Post by Dandy » Tue Dec 03, 2019 7:50 am

If you can get an HELOC without a start up or annual fee - that can be a no cost E fund. Though some have mentioned that during the great recession banks curbed their use. I like Ltd Term Tax Exempt Fund - I believe you can add checking to that fund.

I'm 71 and always had various access to cash or cash-like alternatives I never had an emergency that required using any of them. Most "emergencies" were handled with a credit card. If I had a larger "emergency" the HELOC was a nice option - and was paid off promptly.

User avatar
Watty
Posts: 17606
Joined: Wed Oct 10, 2007 3:55 pm

Re: Alternatives to Cash

Post by Watty » Tue Dec 03, 2019 8:30 am

Doc wrote:
Sun Dec 01, 2019 1:16 pm
Watty wrote:
Sun Dec 01, 2019 1:05 pm
I would be real hard pressed to think of any reason I might unexpectedly need more than a couple of thousand dollars in cash by tomorrow.
Happens all the time. I'm rebalncing and I want to sell 100 shares of XYZ and buy 100 shares of ABC and I am a couple three $k short. Being out of the market for two or three days is "iffy".
I have never bothered doing it but couldn't you just set up the margin feature on your brokerage account?

A couple of days interest on three thousand dollars would be trivial.

Being out of the market for three days is also trivial when you likely have an investing horizon of decades.

Call_Me_Op
Posts: 7383
Joined: Mon Sep 07, 2009 2:57 pm
Location: Milky Way

Re: Alternatives to Cash

Post by Call_Me_Op » Tue Dec 03, 2019 8:54 am

Doc wrote:
Sun Dec 01, 2019 12:39 pm
Any thoughts on these ETF alternatives or any other ideas like maybe brokered CD's?
Doc,

I would avoid active funds for this (manager risk), and brokered CD's may not have sufficient liquidity. What's wrong with the T-bill approach? They do not even need to be staggered - just sell some bills when you need cash. I want my safe money to be safe.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

User avatar
Topic Author
Doc
Posts: 9240
Joined: Sat Feb 24, 2007 1:10 pm
Location: Two left turns from Larry

Re: Alternatives to Cash

Post by Doc » Tue Dec 03, 2019 12:34 pm

Watty wrote:
Tue Dec 03, 2019 8:30 am
Doc wrote:
Sun Dec 01, 2019 1:16 pm
Watty wrote:
Sun Dec 01, 2019 1:05 pm
I would be real hard pressed to think of any reason I might unexpectedly need more than a couple of thousand dollars in cash by tomorrow.
Happens all the time. I'm rebalncing and I want to sell 100 shares of XYZ and buy 100 shares of ABC and I am a couple three $k short. Being out of the market for two or three days is "iffy".
I have never bothered doing it but couldn't you just set up the margin feature on your brokerage account?

A couple of days interest on three thousand dollars would be trivial.

Being out of the market for three days is also trivial when you likely have an investing horizon of decades.
We do have margin accounts at some of our brokers. FWIW you cannot have a margin account in tax advantaged accounts as far as I know.
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

User avatar
Topic Author
Doc
Posts: 9240
Joined: Sat Feb 24, 2007 1:10 pm
Location: Two left turns from Larry

Re: Alternatives to Cash

Post by Doc » Tue Dec 03, 2019 12:53 pm

Call_Me_Op wrote:
Tue Dec 03, 2019 8:54 am
I would avoid active funds for this (manager risk), and brokered CD's may not have sufficient liquidity. What's wrong with the T-bill approach? They do not even need to be staggered - just sell some bills when you need cash. I want my safe money to be safe.
Manager risk for a 3 month duration, A rated bond fund with a M* gold rating is not a concern.

I didn't think brokered CDs for $10k or so was an option.

T-Bills are fine. I'm using them now. I just don't like the book keeping and reinvestment hassel.

I don't consider cash as "safe". It loses money even if the price doesn't change because it earns no interest. (Difference in our definitions.) Of the 60 three month rolling return periods in the last five years MINT has only underperformed Vanguard Prime MM fund 3 times. That's safe enough for me. But then I also use Pimco Total Return Instl PTTRX which most
Bogleheads probably wouldn't even mention in mixed company. :happy
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

Post Reply