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Suggestion on investing cash for next 12-18 months


PJM
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I've a decent chunk of cash that I need to park for next 12-18 months after which I'll need the cash for some other purpose. Naturally deposits/bonds are not a great idea at this stage. Normally I'd have just bought an index ETF but not sure if its a good idea at these levels. I was thinking of investing in 3-4 stocks such as Costco, Berkshire etc that may not give stellar returns but won't have large drawdown as well. Btw, I'm domiciled at a place that has no capital gains tax, so that needs to be considered as well. Any suggestions would be appreciated.

Edited by PJM
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How much risk of loss could you take, and is there any flexibility on timing of when you need the money?

 

I own BRK and COST, but both could easily have a 30% drop during your hold period.

 

As a cash alternative for that timeframe I'd buy a diversified bunch of SPACs. There are lots trading under $9.70 - buy low, and either sell if they pop or just redeem at $10.

 

Gets you a better return than short term fixed income with similar risk. 

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Even "safe" stocks can be down 10,20,30...40% in a short period of time. Do you really want to risk that much principal when the cash is actually needed? 

 

Can you just use portfolio margin for that amount? I'm not sure where're you domiciled and the margin rates/requirements, but I can tell you  my experience here in the U.S.

 

I don't bother "saving" cash for big items. I just maximize my account and when I need a quick loan, I tap the account for it.  If you're borrowing a small amount relative to your total portfolio, the risk is fairly minimal even if the stock market crashes... I use Interactive Brokers. 

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1 hour ago, fareastwarriors said:

Even "safe" stocks can be down 10,20,30...40% in a short period of time. Do you really want to risk that much principal when the cash is actually needed? 

 

Can you just use portfolio margin for that amount? I'm not sure where're you domiciled and the margin rates/requirements, but I can tell you  my experience here in the U.S.

 

I don't bother "saving" cash for big items. I just maximize my account and when I need a quick loan, I tap the account for it.  If you're borrowing a small amount relative to your total portfolio, the risk is fairly minimal even if the stock market crashes... I use Interactive Brokers. 

I use IB as well with the portfolio margin facility, just as an option to tap the account if needed. I don't use leverage for my investment. 

 

Yes, I was planning to park that cash in stocks through margin facility, so that even if there is a drawdown at the time i need the cash, I could tap the account and then wait until the stocks bounce back. I'm fine with temporary vol but would not like permanent loss of capital with this chunk of cash.

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1 hour ago, bizaro86 said:

How much risk of loss could you take, and is there any flexibility on timing of when you need the money?

 

I own BRK and COST, but both could easily have a 30% drop during your hold period.

 

As a cash alternative for that timeframe I'd buy a diversified bunch of SPACs. There are lots trading under $9.70 - buy low, and either sell if they pop or just redeem at $10.

 

Gets you a better return than short term fixed income with similar risk. 

Can you redeem these SPACs at any point of time until the acquisition? How complicated is the process and long long does it take to redeem? Any experience of getting redemptions through iB?

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Ibonds 10k this year and 10k next year. Lock up is 12 months. Current yield is 3.54%, with a penalty of 3 months interest if you redeem before 5 years. Even if you just hold for exactly 12 months and 1 day you are getting a yield of 2.65% after the penalty which is about as good as it gets on something considered risk free. 

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8 hours ago, PJM said:

Can you redeem these SPACs at any point of time until the acquisition? How complicated is the process and long long does it take to redeem? Any experience of getting redemptions through iB?

 

No, you can only redeem for the $10 when they make an acquisition and vote on it, OR when they hit their deadline without doing one. Deadlines for each SPAC are in their prospectus, generally 1-2 years. If you know approximately when you need the money you could select ones with deadlines just before then.

 

The process of redeeming through IB is a bit complicated, generally you have to DWACs out the shares (for which IB charges a fee) and then wait a week or two for the cash. Depending on the amount of money involved you may be better off to sell to an arb right before the deadline, can usually get $9.98 or so.

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I was thinking about doing the SPAC stuff for the cash I am holding until my tax bills are due next year, but I was too worried about missing relevant dates and needing to read a lot of documents to capture a few percent annualized interest. Instead, I've just been shorting very far OTM cash secured puts on meme stocks with high IV.

 

For example, a few weeks ago I shorted 1000 AMC January 2022 0.50 puts for .02 each, risking 48,000 to make 2,000 in five months, which is about a 10% annualized return, and I don't need to think about it again until January. I guess there's technically some risk here, but with all the cash they raised that doesn't seem realistic. You just have to have a broker that doesn't charge any fees for the trade as you don't have much to play with getting just $2 per contract.

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I've been using Celsius and BlockFi to earn decent interest on taxable cash reserves.

 

Neither Celsius nor BlockFi are FDIC insured, so there is counterparty risk to consider but each offer competitive interest on stablecoins that track the USD ranging from 7-9% without beta. 

 

USDC (Coinbase backed - audited and publicly traded) or GUSD (Gemeni backed - audited and owned by the Winklevoss twins) are the two coins I tend to use. 

 

Celsius pays weekly and updates rates weekly. BlockFi does monthly. Might spread some money across each and some of the ideas mentioned above to reduce any counterparty risk. 

 

Referral codes below. Full disclosure - we each will receive a small reward if you sign up using either of the links and meet the offer terms. 

 

https://blockfi.com/?ref=bb07722e 

BlockFi referral code 

 

https://celsiusnetwork.app.link/15996169ea

Celsius referral link

Edited by TwoCitiesCapital
Corrected mispelling
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31 minutes ago, TwoCitiesCapital said:

Neither Celsius nor BlockFi are FDIC insured, so there is counterparty risk to consider but each offer competitive interest on stablecoins that track the USD ranging from 7-9% without beta. 

How is this as risk free as money markets or treasuries. 7-9%!! There has to be something sketchy right?

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14 minutes ago, hasilp89 said:

How is this as risk free as money markets or treasuries. 7-9%!! There has to be something sketchy right?

 

I didn't say risk free. There's counterparty risk. They're bank-like institutions. 

 

They take your stable coins as deposits and make loans to crypto companies that have a hard time getting traditional financing, or crypto traders pledging crypto as collateral, or hedge fund, or etc. 

 

It's the traditional banking model without FDIC support. I don't know as much about Celsius, but my understanding is all loans at BlockFi are collateralized and they survived the 2018 drawdown so that alleviates my fears. 

 

Seeing as BTC has averaged 100% returns every year since it's inception and crypto as a whole is super volatile, borrowers in the space are generally happy to pay the 7-10% interest for the ability to leverage 50-100% swings. 

 

I tend to think of it along the lines of high yield credit. But instead of yielding 4%, it yields 7-10% without the beta. 

 

 

Edited by TwoCitiesCapital
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2 hours ago, hasilp89 said:

So you’re lending to someone speculating on crypto coins increasing in value? They pay you 7% expecting their investment to return 100%?
Sounds like a tremendous amount can go wrong and the reward is only 7%. 

 

The loans are collateralized in the event things go south, but yes things can go wrong. Just like SPACS can trade below NAV, money markets can break the buck, and etc. 

 

At 7-9%, I think you're well compensated for the risk. Again, traditional financial markets are giving high yield credits with high likely good of default and no collateralization 4-6%. 

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What have you got against simply paying down your debt today (mortgage, credit line, cards, etc.)? and re-borrowing in 18 mo. when the money is needed.

Zero risk involved, instant savings in after-tax dollars, very simple to execute. Worst case, you pay a few bucks to have a lawyer draw up an agreement between the source of the money & yourself (eliminate co-mingling issues)

 

Sure, it's not sexy, but that's not a requirement.

The only people who will be PO'd are your banker and broker, because you deprived them of commission on new business.

Shame 😀

 

SD

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21 minutes ago, SharperDingaan said:

What have you got against simply paying down your debt today (mortgage, credit line, cards, etc.)? and re-borrowing in 18 mo. when the money is needed.

Zero risk involved, instant savings in after-tax dollars, very simple to execute. Worst case, you pay a few bucks to have a lawyer draw up an agreement between the source of the money & yourself (eliminate co-mingling issues)

 

Sure, it's not sexy, but that's not a requirement.

The only people who will be PO'd are your banker and broker, because you deprived them of commission on new business.

Shame 😀

 

SD

Using a HELOC or personal line of credit, I can understand but trying to re-qualify for a mortgage at another time is all kind of hassle and potential risk...

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I park cash in SHV or MINT.  Both are pretty close to what 'special deal open an account bank savings accounts' will give you.  Plus I can hold these in any brokerage account.  Lately the % has been awful but same for any 12 month cash like instrument.

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  • 2 weeks later...
On 9/18/2021 at 9:40 AM, hasilp89 said:

some state regulations for celsius 

https://www.ft.com/content/de5d62e8-871e-465b-8ee1-35da08ec6379

 

 

BlockFi has also been targeted. We will see how it turns out. As of right now, my interest is still being paid on both. 

 

As it stands now, BTC and ETH have already been determined not to be securities, but stablecoins are operating in a gray area. I wouldn't be shocked if they end up being regulated similarly to money market funds and BlockFi and Celsius will need to register with the appropriate regulatory bodies to have customers "invested" in these "money market" instruments that accrue interest. 

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