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Jason Zweig: Cash Is Now A Sin: MFO's David Snowball Comments
@DavidV: Thanks for helping heezsafe ! Jason Zweig's "The Intelligent Investor" articles were free up to about a month ago, but no more. Now, about 99% of WSJ articles require subscription. Regards, Ted
Most fund managers also need to show performance in order to attract more AUM. Even if they wanted to hold more cash for a rainy day, they don't dare show 'drag' in a rising market lest potential customers put their $$$ into a competitor's fund instead.
Thankfully, us individual investors don't need to compete with an arbitrary benchmark to attract assets, so if we're holding large cash-like piles for prolonged periods[1], and our other holdings are doing just fine and meeting our goals/needs, at least WE will be in a position to buy hand-over-fist when quality stuff 'goes on sale.'
[1] I am. While I have many existing long-term positions/accounts and have added new stuff over time -- holding nice Sleep Well At Night equity-heavy portfolios -- I've had a hard time willingly committing large amounts of inherited funds into the market in recent years. There are few good values in my view. Ergo, I wait patiently.
Can't access the article, so here's a shot in the dark:
Observing my funds, especially at T. Rowe Price, I've observed over several years that they have been avoiding holding cash if cash is defined as a money market fund or bank deposit. Obviously, they don't want money earning near 0. However, many funds do hold suitable higher yielding proxies for cash (that is unless your investing horizon is extremely short). Here's three low risk funds you're likely to find in place of cash, often in substantial percentages, in T. Rowe Price 's allocation and balanced funds.
Limited Duration Inflation Focused Bond Fund TRBFX Ultra Short Term Bond Fund TRBUX Short Term Bond Fund PRWBX
(Correction to my earlier comments: PRWCX does not invest in the above funds from what I can tell. But, interestingly, as of last December the fund held 14.9% in Price's "Reserve Investment Fund", a money market fund apparently designed to serve their own uses.)
So, I wonder if Zweig is including these types of investments as cash in whatever numbers he's floating around? Additionally, recognizing that more and more individual investors now use allocation, balanced and target date funds, fund houses and managers may feel a bit more freedom to keep their equity funds aggressively invested.
Funds can't raise cash because of manager "career risk" ( they have to be careful to at least match the "benchmark" from year to year / quarter to quarter). This is one of the dilemmas of investing in mutual funds. Others are fees, various rates of portfolio turnover, manager turnover. Investing in index ETFs eliminates these factors ( DIY investors can go to cash when they want and fees/expenses can be very low). Mutual funds and individual stock portfolios are the product of the 20th century investment landscape. ETFs represent the 21st century landscape ...
Even though I think of myself as a good Christian according to this article I am a big sinner by holding such a sizeable cash position within my portfolio.
In review of a few recent Xray analysis the funds within my portfolio, which consists of forty seven, currently hold an average of 3% in cash which is down from the year ending analysis number of about 5% in cash back in December. My fixed income funds usually hold more cash than my equity funds.
As I entered 2016, combined, my portfolio was holding about 25% in cash. Now, my cash bubbles at about 22% due to the buys I made during the recent market selling stampede, scheduled retirement distributions plus the funds themselves are now holding less cash than they were at year end. My portfolio, on average, generates about 1.25% in cash (yield) per quarter on amount invested. With this, I could easily be close to a 23% cash allocation by the end of the first quarter.
I'll continue to hold the large cash allocation as I am thinking of selling some of my equities since the S&P 500 Index is currently selling at a TTM P/E Ratio of 23 according to the WSJ. With this, stocks are not currently cheap and are richly priced from my perspective using the Rule of Twenty. Since, I am above my target allocation (50%) to stocks, now at about 53%, soon might be a good time to pair back a few of my equity positions and rebalance as summer approaches.
I am thinking my sizeable cash allocation is a blessing and orginates from Biblical teaching. Besides, when I make harvest of my plantings, and book profits, the Lord gets his share.
Old Skeet said: "I am a big sinner by holding such a sizeable cash position within my portfolio."
I don't think you're a sinner. There are many benefits to cash. In some instances higher cash levels allow you to take on greater risk in selected areas you consider good value. And in down markets it allows you to stay the course while others are bailing at a loss.
Discussing cash is the problem. Everybody has a slightly different way of quantifying their actual level. Heck, there's one (unnamed) junk bond fund that some here are using as "cash." Others include funds like RPSIX - which is anything but cash. I'm not passing judgment here, but rather showing how perceptions vary.
I could say I'm currently at 7.5% cash, having raised that from under 4% in January. But that doesn't tell the entire story. A half dozen or more of my balanced and allocation funds hold cash. That amount's not included in the figure I sometimes fling around. Especially noteworthy are large holdings in RPSIX and TRRIX, two very conservative funds with modest holdings of cash or short-term bonds. Realistically, my cash position is likely in the 15-20% range when the cash held by these funds are included.
Having said all that, my nominal 7.5% (plain unadulterated cash) reflects a slightly positive outlook for the types of funds I hold, which tend to be a bit overweighted in the raw materials and precious metals sectors. A 10% weighting would represent more of a neutral outlook. I'll get there eventually. And, of course, as always, I could be wrong.
Skeet, your posts are awesome IMHO. You have a clearly thought out plan and consistently adhere to it. Thanks for sharing.
Comments
https://www.google.com/search?sourceid=navclient&aq=hts&oq=&ie=UTF-8&rlz=1T4AVNH_enUS648US649&q=Cash+Is+Now+a+Sin
Regards,
Ted
Thankfully, us individual investors don't need to compete with an arbitrary benchmark to attract assets, so if we're holding large cash-like piles for prolonged periods[1], and our other holdings are doing just fine and meeting our goals/needs, at least WE will be in a position to buy hand-over-fist when quality stuff 'goes on sale.'
[1] I am. While I have many existing long-term positions/accounts and have added new stuff over time -- holding nice Sleep Well At Night equity-heavy portfolios -- I've had a hard time willingly committing large amounts of inherited funds into the market in recent years. There are few good values in my view. Ergo, I wait patiently.
Observing my funds, especially at T. Rowe Price, I've observed over several years that they have been avoiding holding cash if cash is defined as a money market fund or bank deposit. Obviously, they don't want money earning near 0. However, many funds do hold suitable higher yielding proxies for cash (that is unless your investing horizon is extremely short). Here's three low risk funds you're likely to find in place of cash, often in substantial percentages, in T. Rowe Price 's allocation and balanced funds.
Limited Duration Inflation Focused Bond Fund TRBFX
Ultra Short Term Bond Fund TRBUX
Short Term Bond Fund PRWBX
(Correction to my earlier comments: PRWCX does not invest in the above funds from what I can tell. But, interestingly, as of last December the fund held 14.9% in Price's "Reserve Investment Fund", a money market fund apparently designed to serve their own uses.)
So, I wonder if Zweig is including these types of investments as cash in whatever numbers he's floating around? Additionally, recognizing that more and more individual investors now use allocation, balanced and target date funds, fund houses and managers may feel a bit more freedom to keep their equity funds aggressively invested.
Regards,
Ted
https://www.google.com/#q=cash+is+now+a+sin+jason+zweig
An interesting subject: "Cash Is Now A Sin."
Even though I think of myself as a good Christian according to this article I am a big sinner by holding such a sizeable cash position within my portfolio.
In review of a few recent Xray analysis the funds within my portfolio, which consists of forty seven, currently hold an average of 3% in cash which is down from the year ending analysis number of about 5% in cash back in December. My fixed income funds usually hold more cash than my equity funds.
As I entered 2016, combined, my portfolio was holding about 25% in cash. Now, my cash bubbles at about 22% due to the buys I made during the recent market selling stampede, scheduled retirement distributions plus the funds themselves are now holding less cash than they were at year end. My portfolio, on average, generates about 1.25% in cash (yield) per quarter on amount invested. With this, I could easily be close to a 23% cash allocation by the end of the first quarter.
I'll continue to hold the large cash allocation as I am thinking of selling some of my equities since the S&P 500 Index is currently selling at a TTM P/E Ratio of 23 according to the WSJ. With this, stocks are not currently cheap and are richly priced from my perspective using the Rule of Twenty. Since, I am above my target allocation (50%) to stocks, now at about 53%, soon might be a good time to pair back a few of my equity positions and rebalance as summer approaches.
I am thinking my sizeable cash allocation is a blessing and orginates from Biblical teaching. Besides, when I make harvest of my plantings, and book profits, the Lord gets his share.
Have a good evening,
Old_Skeet
I don't think you're a sinner. There are many benefits to cash. In some instances higher cash levels allow you to take on greater risk in selected areas you consider good value. And in down markets it allows you to stay the course while others are bailing at a loss.
Discussing cash is the problem. Everybody has a slightly different way of quantifying their actual level. Heck, there's one (unnamed) junk bond fund that some here are using as "cash." Others include funds like RPSIX - which is anything but cash. I'm not passing judgment here, but rather showing how perceptions vary.
I could say I'm currently at 7.5% cash, having raised that from under 4% in January. But that doesn't tell the entire story. A half dozen or more of my balanced and allocation funds hold cash. That amount's not included in the figure I sometimes fling around. Especially noteworthy are large holdings in RPSIX and TRRIX, two very conservative funds with modest holdings of cash or short-term bonds. Realistically, my cash position is likely in the 15-20% range when the cash held by these funds are included.
Having said all that, my nominal 7.5% (plain unadulterated cash) reflects a slightly positive outlook for the types of funds I hold, which tend to be a bit overweighted in the raw materials and precious metals sectors. A 10% weighting would represent more of a neutral outlook. I'll get there eventually. And, of course, as always, I could be wrong.
Skeet, your posts are awesome IMHO. You have a clearly thought out plan and consistently adhere to it. Thanks for sharing.