1 million cash - looking for low risk investment

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wolf359
Posts: 1973
Joined: Sun Mar 15, 2015 8:47 am

Re: 1 million cash - looking for low risk investment

Post by wolf359 » Sun Jan 12, 2020 4:10 pm

minimalistmarc wrote:
Sat Jan 11, 2020 7:23 am
wolf359 wrote:
Fri Jan 10, 2020 3:35 pm
minimalistmarc wrote:
Fri Jan 10, 2020 1:43 pm
missedit wrote:
Fri Jan 10, 2020 1:37 pm
thank you lakpr and snailderby - this is very good info for someone at my stage. I always suspected treasuries were better than bond funds. Are there any advantages (or disadvantages) to buying intermediate treasuries directly in fidelity brokerage vs buying VFITX?


Unfortunately you have failed on your first priority to preserve capital by being in cash for 10 years. Your capital is now worth a lot less inflation adjusted.

If you want to preserve capital (real capital, not nominal) then you will need a little bit more stock, at least 20 - 30%.
Let's quantify that. https://www.usinflationcalculator.com/

$1,000,000 in 2009 had the same buying power as $1,179,550.21 today. OP lost about $180K in buying power, although he probably earned some interest. Cumulative inflation was about 18%.
Shouldn’t you also calculate the missed gains from a portion of the money that might have been invested?
The portion of the money that the OP was comfortable investing was 0%. This was because the OP was seeking safety.

My point is that the "safe" option resulted in a loss of buying power in the amount of 18% of their original, or around $180K. His safe option wasn't safe.

What you're talking about is opportunity cost, or what the OP could have earned had they put the money elsewhere. There are almost an infinite number of options for this, but they really come down to what the OP would have been willing to invest the money in. Given the OP's risk tolerance, that wouldn't have been stocks. Maybe 10 year treasuries, since that matches the time frame.

But my intent was to point out the loss in buying power, not the opportunity cost. Only the OP can say what would have been a viable alternative, and calculate that cost.

Topic Author
missedit
Posts: 10
Joined: Tue Aug 30, 2016 2:20 pm

Re: 1 million cash - looking for low risk investment

Post by missedit » Tue Jan 14, 2020 1:58 pm

I started researching FUAMX as possible place to put 80% of money in taxable account. It only went back 2 years in all sites where I could chart it. But when I open up the prospectus, it showed results from 2009 on wards (its name may have changed along the way). Anyway I am pasting below what I found
https://postimg.cc/BXtskWSc
as you can see, it had losses in 2009 and 2013. If it invests in an index of treasuries and holds them to maturity how can there be losses? If I repeat it myself (buy at auction in Fidelity and hold them to maturity) I will not have losses (unless we go into negative interest rates). hence unless I understand this better, I feel uncomfortable buying a fund vs investing in bonds directly

dbr
Posts: 31328
Joined: Sun Mar 04, 2007 9:50 am

Re: 1 million cash - looking for low risk investment

Post by dbr » Tue Jan 14, 2020 5:52 pm

missedit wrote:
Tue Jan 14, 2020 1:58 pm

as you can see, it had losses in 2009 and 2013. If it invests in an index of treasuries and holds them to maturity how can there be losses? If I repeat it myself (buy at auction in Fidelity and hold them to maturity) I will not have losses (unless we go into negative interest rates).
The net asset value (NAV) of a bond fund is the current market value of all the bonds in the fund. That number goes up and down all the time. It could be less today than it was at some time in the past. The same thing is true of your portfolio of bonds if you look up today's market quote for each bond you hold and add it up. There can even be losses in holding a bond to maturity if you bought the bond at a premium.

delamer
Posts: 9492
Joined: Tue Feb 08, 2011 6:13 pm

Re: 1 million cash - looking for low risk investment

Post by delamer » Tue Jan 14, 2020 8:11 pm

dbr wrote:
Tue Jan 14, 2020 5:52 pm
missedit wrote:
Tue Jan 14, 2020 1:58 pm

as you can see, it had losses in 2009 and 2013. If it invests in an index of treasuries and holds them to maturity how can there be losses? If I repeat it myself (buy at auction in Fidelity and hold them to maturity) I will not have losses (unless we go into negative interest rates).
The net asset value (NAV) of a bond fund is the current market value of all the bonds in the fund. That number goes up and down all the time. It could be less today than it was at some time in the past. The same thing is true of your portfolio of bonds if you look up today's market quote for each bond you hold and add it up. There can even be losses in holding a bond to maturity if you bought the bond at a premium.
Right. The value fluctuates as interest rates fluctuate, even with very high quality bonds like Treasuries.

The value is based on what the bond would sell for today, not if held to maturity.

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