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Cash "equivalent" investments


plato1976
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With interest at or near history low, does anyone have the same trouble as mine on where to park the cash?

Is there any investment "almost as good as cash" but earn a little bit more?

I think anything that's safe enough and liquid enough for me to convert into cash in 1-3 months should be good enough

I hope it's not just me... In this market I keep 30%+ cash...

 

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Everyone faces this challenge right now (and has for the last several years).  One instrument I've used is adjustable rate government bond funds.  The funds are basically comprised of adjustable rate mortgage securities that are insured by Freddie or Fannie.  No credit risk, virtually no interest rate risk.  The yields aren't that great but they are better than cash and you have liquidity.  One example is http://quotes.morningstar.com/fund/f?t=FAUZX&region=usa&culture=en-US. 

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With interest at or near history low, does anyone have the same trouble as mine on where to park the cash?

Is there any investment "almost as good as cash" but earn a little bit more?

I think anything that's safe enough and liquid enough for me to convert into cash in 1-3 months should be good enough

I hope it's not just me... In this market I keep 30%+ cash...

 

Depending on the size of your cash pile and lock up outlook, pretty much any high liquidity instrument (1) will do since interest rates are volatile at the moment. 1. Probably need assets to be interest rate independent, would be nice if inflation independent, and valued in USD.

 

Try BRK if you want higher returns? I specifically pick BRK because Buffett tries to get returns to match IV growth for shareholders. Obviously no guarantees. I wouldn't buy many other stocks as a cash proxy however. Not the best solution but I'm guessing you've heard of the more practical approaches.

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With interest at or near history low, does anyone have the same trouble as mine on where to park the cash?

Is there any investment "almost as good as cash" but earn a little bit more?

I think anything that's safe enough and liquid enough for me to convert into cash in 1-3 months should be good enough

I hope it's not just me... In this market I keep 30%+ cash...

 

Look in your 401k plan to see if it has an option named stable value fund. Some time the name varies such as capital preservation fund or fixed income fund, etc. But as its name suggests, it provides capital preservation while yields about 1-2% right now.

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With interest at or near history low, does anyone have the same trouble as mine on where to park the cash?

Is there any investment "almost as good as cash" but earn a little bit more?

I think anything that's safe enough and liquid enough for me to convert into cash in 1-3 months should be good enough

I hope it's not just me... In this market I keep 30%+ cash...

 

Depending on the size of your cash pile and lock up outlook, pretty much any high liquidity instrument (1) will do since interest rates are volatile at the moment. 1. Probably need assets to be interest rate independent, would be nice if inflation independent, and valued in USD.

 

Try BRK if you want higher returns? I specifically pick BRK because Buffett tries to get returns to match IV growth for shareholders. Obviously no guarantees. I wouldn't buy many other stocks as a cash proxy however. Not the best solution but I'm guessing you've heard of the more practical approaches.

 

Are you honestly recommending BRK as a cash proxy?

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With interest at or near history low, does anyone have the same trouble as mine on where to park the cash?

Is there any investment "almost as good as cash" but earn a little bit more?

I think anything that's safe enough and liquid enough for me to convert into cash in 1-3 months should be good enough

I hope it's not just me... In this market I keep 30%+ cash...

 

Depending on the size of your cash pile and lock up outlook, pretty much any high liquidity instrument (1) will do since interest rates are volatile at the moment. 1. Probably need assets to be interest rate independent, would be nice if inflation independent, and valued in USD.

 

Try BRK if you want higher returns? I specifically pick BRK because Buffett tries to get returns to match IV growth for shareholders. Obviously no guarantees. I wouldn't buy many other stocks as a cash proxy however. Not the best solution but I'm guessing you've heard of the more practical approaches.

 

Are you honestly recommending BRK as a cash proxy?

 

Seems to happen towards the top of every bull market.  Of course BRK will fall with the market when the market falls.  If you want to own BRK own BRK, if you want cash then own cash.  Yes, you will 'lose' out because interest is less than inflation.  But cash is cash, it's optionality.  Cash gives you the ability to buy something on the spot, whether it's a hard good (TV, fridge, football tickets) or equity.  If you think you will need to buy something then stay in cash, if you don't need to buy anything and want exposure to BRK buy BRK.

 

Bottom line is if you're looking to juice cash returns you're playing a risky game.  I remember all sorts of weird income investments before 2007 with investors looking to juice their cash returns.  Some did alright and got out ok, others lost out and all those extra gains resulted in losses.

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there was a similar thread entitled "bond ETFs" recently. I will say what I did there. There are few free lunches in investing and there is definitely no free lunch in cash and fixed income; you have to take on reduced liquidity, or credit risk, or duration or something to make more money. Period.

 

The only almost risk free advantage to be had is taking advantage of being small.

 

Being small  (relative to institutions) allows us to take advantage of institutions that want deposits and will pay > bond market rates with little duration and FDIC insurance. Being small also allows us to build material (depending on your wealth) positions in inflation-linked savings bonds over time.

 

If you want to make more on your cash (and its purpose is truly cash, not making money), invest $10K/year in i-bonds. You can't redeem them for 1 year and you pay a small penalty for redeem in years 1-5 or you can hold them for 30 yrs. They pay you inflation in the form of tax deferred accretion. If you build this over time, once you are at (day of purchase+1 yr) for a given lot, this becomes effectively inflation linked cash.

 

Search around for CD's, my favorite is the GE Capital 5 yr CD at 2.25% with a 270 day's interest (1.7%) early redemption penalty. This is basically a bond fund with an embedded payer swaption where you can make a little less than AGG but take only FDIC credit risk and your duration is capped. No retail investor should own a dime of bond funds before they max out this.

 

The stable value thing offered to 401'ks/403'bs is also a good option, just check the liquidity / fees/ redemption penalties.

 

Considering a portfolio of Fannie/Freddie ARM's (suggested earlier) cash is a bit of a stretch in my opinion. You are taking on mortgage spread risk, curve risk, prepayments being slower or faster than expected risk. You are effectively writing an option whenever you own a portfolio of conforming mortgages, even if floating rate. there are floors and caps, teaser periods, defaults (prepayments), normal prepayments, technicals (high concentration of ownership in fed and levered mREITs), and all kinds of stuff. I don't know a ton about floating rate RMBS but having traded a little floating rate product an a lot of fixed rate mortgages, I can tell you there are 1000's of bank & insurance treasurers and analysts and traders  and what have you  probing this market for bargains and taking away any good risk adjusted returns.

 

It is a game of basis points. Not to mention the example fund yields 60 basis points after fees, you can get that with a CD or with a high yield savings account at American Express and not have to buy / sell a security and worry about the sell side's prepayment models.

 

There are other worse options like short duration credit funds (basically take on HY risk to make 3% and sell puts on upcoming refinancings) but that's a dangerous game. There are plenty of mutual funds that offer this.

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With interest at or near history low, does anyone have the same trouble as mine on where to park the cash?

Is there any investment "almost as good as cash" but earn a little bit more?

I think anything that's safe enough and liquid enough for me to convert into cash in 1-3 months should be good enough

I hope it's not just me... In this market I keep 30%+ cash...

 

Plato-I'm no genius but I would think that the only way to keep cash but earn more is to:

*I think commercial might be one way to earn a little bit over the short term.

 

The real problem is that cash will average 30% (0) until you deploy it.  And while that might sound bad--it is much better than investing because the market keeps going up or something.  Ultimately, the only way to earn more than cash is to buy something more risky/less liquid than cash.  Good luck

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With interest at or near history low, does anyone have the same trouble as mine on where to park the cash?

Is there any investment "almost as good as cash" but earn a little bit more?

I think anything that's safe enough and liquid enough for me to convert into cash in 1-3 months should be good enough

I hope it's not just me... In this market I keep 30%+ cash...

 

Depending on the size of your cash pile and lock up outlook, pretty much any high liquidity instrument (1) will do since interest rates are volatile at the moment. 1. Probably need assets to be interest rate independent, would be nice if inflation independent, and valued in USD.

 

Try BRK if you want higher returns? I specifically pick BRK because Buffett tries to get returns to match IV growth for shareholders. Obviously no guarantees. I wouldn't buy many other stocks as a cash proxy however. Not the best solution but I'm guessing you've heard of the more practical approaches.

 

Are you honestly recommending BRK as a cash proxy?

 

Seems to happen towards the top of every bull market.  Of course BRK will fall with the market when the market falls.  If you want to own BRK own BRK, if you want cash then own cash.  Yes, you will 'lose' out because interest is less than inflation.  But cash is cash, it's optionality.  Cash gives you the ability to buy something on the spot, whether it's a hard good (TV, fridge, football tickets) or equity.  If you think you will need to buy something then stay in cash, if you don't need to buy anything and want exposure to BRK buy BRK.

 

Bottom line is if you're looking to juice cash returns you're playing a risky game.  I remember all sorts of weird income investments before 2007 with investors looking to juice their cash returns.  Some did alright and got out ok, others lost out and all those extra gains resulted in losses.

 

And the true value guys some out of the woodwork. ;)

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With interest at or near history low, does anyone have the same trouble as mine on where to park the cash?

Is there any investment "almost as good as cash" but earn a little bit more?

I think anything that's safe enough and liquid enough for me to convert into cash in 1-3 months should be good enough

I hope it's not just me... In this market I keep 30%+ cash...

 

Depending on the size of your cash pile and lock up outlook, pretty much any high liquidity instrument (1) will do since interest rates are volatile at the moment. 1. Probably need assets to be interest rate independent, would be nice if inflation independent, and valued in USD.

 

Try BRK if you want higher returns? I specifically pick BRK because Buffett tries to get returns to match IV growth for shareholders. Obviously no guarantees. I wouldn't buy many other stocks as a cash proxy however. Not the best solution but I'm guessing you've heard of the more practical approaches.

 

Are you honestly recommending BRK as a cash proxy?

 

Personally I prefer BRK over cash.  When you think about it it's a lot better.  Let me list the ways.  One, you get to be junior partners to Warren and Charlie.  That's priceless.  Two, you sleep better than if you just have plain old cash.  Three, you get a ticket to the hottest show on the planet and can go and laugh maniacally every time Warren or Charlie say something remotely amusing and hiss anyone who says anything remotely critical.  Four, you get to feel superior to anyone who doesn't agree with you.  To me, it isn't even close.

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With interest at or near history low, does anyone have the same trouble as mine on where to park the cash?

Is there any investment "almost as good as cash" but earn a little bit more?

I think anything that's safe enough and liquid enough for me to convert into cash in 1-3 months should be good enough

I hope it's not just me... In this market I keep 30%+ cash...

 

Depending on the size of your cash pile and lock up outlook, pretty much any high liquidity instrument (1) will do since interest rates are volatile at the moment. 1. Probably need assets to be interest rate independent, would be nice if inflation independent, and valued in USD.

 

Try BRK if you want higher returns? I specifically pick BRK because Buffett tries to get returns to match IV growth for shareholders. Obviously no guarantees. I wouldn't buy many other stocks as a cash proxy however. Not the best solution but I'm guessing you've heard of the more practical approaches.

 

Are you honestly recommending BRK as a cash proxy?

 

Personally I prefer BRK over cash.  When you think about it it's a lot better.  Let me list the ways.  One, you get to be junior partners to Warren and Charlie.  That's priceless.  Two, you sleep better than if you just have plain old cash.  Three, you get a ticket to the hottest show on the planet and can go and laugh maniacally every time Warren or Charlie say something remotely amusing and hiss anyone who says anything remotely critical.  Four, you get to feel superior to anyone who doesn't agree with you.  To me, it isn't even close.

 

When framed in that manner, the choice seems obvious!

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With interest at or near history low, does anyone have the same trouble as mine on where to park the cash?

Is there any investment "almost as good as cash" but earn a little bit more?

I think anything that's safe enough and liquid enough for me to convert into cash in 1-3 months should be good enough

I hope it's not just me... In this market I keep 30%+ cash...

 

Depending on the size of your cash pile and lock up outlook, pretty much any high liquidity instrument (1) will do since interest rates are volatile at the moment. 1. Probably need assets to be interest rate independent, would be nice if inflation independent, and valued in USD.

 

Try BRK if you want higher returns? I specifically pick BRK because Buffett tries to get returns to match IV growth for shareholders. Obviously no guarantees. I wouldn't buy many other stocks as a cash proxy however. Not the best solution but I'm guessing you've heard of the more practical approaches.

 

Are you honestly recommending BRK as a cash proxy?

 

Personally I prefer BRK over cash.  When you think about it it's a lot better.  Let me list the ways.  One, you get to be junior partners to Warren and Charlie.  That's priceless.  Two, you sleep better than if you just have plain old cash.  Three, you get a ticket to the hottest show on the planet and can go and laugh maniacally every time Warren or Charlie say something remotely amusing and hiss anyone who says anything remotely critical.  Four, you get to feel superior to anyone who doesn't agree with you.  To me, it isn't even close.

 

This is in the context of a portfolio. I think the OP said he wants 30% cash. Maybe he has 70% invested in Brk. He is totally rational for not being 100% Brk. This is about the cash portion of a portfolio.

 

 

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Personally I prefer BRK over cash.  When you think about it it's a lot better.  Let me list the ways.  One, you get to be junior partners to Warren and Charlie.  That's priceless.  Two, you sleep better than if you just have plain old cash.  Three, you get a ticket to the hottest show on the planet and can go and laugh maniacally every time Warren or Charlie say something remotely amusing and hiss anyone who says anything remotely critical.  Four, you get to feel superior to anyone who doesn't agree with you.  To me, it isn't even close.

 

This is in the context of a portfolio. I think the OP said he wants 30% cash. Maybe he has 70% invested in Brk. He is totally rational for not being 100% Brk. This is about the cash portion of a portfolio.

 

Useful rule of thumb: If Kraven posts something about Berkshire, Buffett, or Munger, he's being sarcastic.  ;)

 

Sh***t can I delete my post?

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With interest at or near history low, does anyone have the same trouble as mine on where to park the cash?

Is there any investment "almost as good as cash" but earn a little bit more?

I think anything that's safe enough and liquid enough for me to convert into cash in 1-3 months should be good enough

I hope it's not just me... In this market I keep 30%+ cash...

 

Depending on the size of your cash pile and lock up outlook, pretty much any high liquidity instrument (1) will do since interest rates are volatile at the moment. 1. Probably need assets to be interest rate independent, would be nice if inflation independent, and valued in USD.

 

Try BRK if you want higher returns? I specifically pick BRK because Buffett tries to get returns to match IV growth for shareholders. Obviously no guarantees. I wouldn't buy many other stocks as a cash proxy however. Not the best solution but I'm guessing you've heard of the more practical approaches.

 

Are you honestly recommending BRK as a cash proxy?

 

Seems to happen towards the top of every bull market.  Of course BRK will fall with the market when the market falls.  If you want to own BRK own BRK, if you want cash then own cash.  Yes, you will 'lose' out because interest is less than inflation.  But cash is cash, it's optionality.  Cash gives you the ability to buy something on the spot, whether it's a hard good (TV, fridge, football tickets) or equity.  If you think you will need to buy something then stay in cash, if you don't need to buy anything and want exposure to BRK buy BRK.

 

Bottom line is if you're looking to juice cash returns you're playing a risky game.  I remember all sorts of weird income investments before 2007 with investors looking to juice their cash returns.  Some did alright and got out ok, others lost out and all those extra gains resulted in losses.

 

 

Not the best solution but I'm guessing you've heard of the more practical approaches.

 

I park my cash in cash.

 

Ultimately, the only way to earn more than cash is to buy something more risky/less liquid than cash.  Good luck

 

The risks taken on with a BRK investment at these valuation levels (assuming the stock is priced at P/B and will only fall in extreme market panic or something similar) make it a safer 'cash' alternative then nearly any bond fund in my opinion (which is why I purposely didn't include bond funds). Interest-rate risk in the face of June 2015 rate increases seems more severe than market risk on your BRK position. I would say TIPS but that still won't accomplish what OP is looking for. If we assume Bond funds [including individual bond positions], TIPS, and stock are out of the question then you are going to take on credit risk that is worse than FDIC or deployment delay risk with a CD. Cash should be cash. Holding cash with the intention of using it in depressed securities in the future is your return on cash.

 

I don't understand the negative reactions, the BRK suggestion was an attempt to answer OP's question in an out-of-the-box fashion. My answer really had nothing to do with what the DOW is at. It's based on BRKs stated mission, a history of returns matching IV growth (in general), liquidity, ect. Any answer really depends on risk-tolerance (including what type of risk you refuse to take on), what your comfort for a liquidation period is, cash balance,  among many other factors. If you really want nominal capital preservation than opt-out of the money market accounts your broker puts you in (a few almost broke-the-buck in the crisis). wellmont has the only 'true' correct answer. If you are truly using your cash as cash (and not lower risk, high liquidity, yield chasing 'cash') then USD cash is the only answer (or whatever your local currency/ccy of your paycheck is). Even if you put cash in a CD then it is not in a brokerage account and you have a risk from the delay in being able to deploy it (depending on your situation).

 

OP's question is moot but the discussion of alternatives is valuable in my opinion.

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In Canada, we have funds called HISA's. High interest saving accounts. They are liquid, have CIDC protection and pay a interest rate similar to a high interest savings account. That is what I do in my investment accounts to get interest. I would say they are basically cash.

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