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Hello. Does anyone have any ideas for a cash alternative fund? In this case I'm thinking in terms of money not needed for 1-3 years. Currently, I'm using the old tried and true RPHYX and PTIAX. Does anyone have any other ideas? What if the scenario is extended to 3-5 years? Thanks, -psuche98
I currently use 5....SSTHX, ZEOIX, PIFZX, SUBFX all in tax deferred, plus VWITX in taxable.
PTIAX also resides in my tax-deferred account, but I don't consider that as a cash alternative holding. But, some may say SUBFX isn't either, and that may be true as well.
My objective here is 2-3% a year for these, and I will be very happy.
Hmmm...I never heard of PTIAX and it has a maturity out 7-8 years. Need to research. I do own both RPHYX and RSIVX in both taxable and tax deferred accounts.
I am really trying to avoid directly holding fund with the fund company. It is just a pain at tax time. Very few funds I own direct. PTIAX is available at brokerages so its a plus. Funny thing is its municipal bond fund has capital preservation in the goal, PTIAX doesn't, and very wierd part is that for fact sheet of PTIAX it mentioned municipal bonds are undervalued while for THAT funds fact sheet it mentions no such thing.
If anyone aware of any manager interviews or something for PTIAX, kindly link. Google didn't help me out, but then you have to know what to search for.
It depends on your risk tolerance of course. I would consider any money you need within 2-3 years suitable for money market funds. For 3 years or more I would look at income funds. There is some risk but it's relatively mild. I use AMJVX in this regard for my portfolio but most if the major fund companies have these.
I'd consider Zeo Strategic Income (ZEOIX), which we've profiled. It's a bit more volatile that RPHYX but not hugely and a bit more rewarding. In terms of a risk-return tradeoff, I checked for funds with standard deviations at or below Zeo's and returns at or above theirs. There are only two such funds: Guggenheim Limited Duration and GMO Opportunistic Income, which has a $750 million minimum initial investment requirement.
Guggenheim fans might look at Guggenheim Enhanced Short Duration ETF (GSY). I screened for funds with the highest 5-year Sharpe ratio. RiverPark is first (that's not unusual), what appears to be a closed-end real estate income fund (BV5J) is second and Guggenheim is third. 1.3% returns but the max 5-year drawdown is 0.1% and the standard deviation is 0.3%. That puts it roughly 1.3% above cash with minimal volatility.
As to Zeo, its maximum drawdown is 1.5% with a recovery period of five months. Over the past five years it's returned 3.4% with a standard deviation of 1.3%.
If you're really talking 3-5y, I always suggest looking hard at a combo of PONDX, PDI, and FRIFX, examining their worst-case scenarios to see what you could tolerate. FSICX and DODIX are other things to look at (FBALX also, and similar; also BND, BOND, AOK, and many others). You would have to commit mentally to sticking it out for the six months or whatever when it goes negative. (If any negative turn would be intolerable even briefly, scratch this response.)
Thanks for all of the suggestions! I hold RSIVX which I consider to be in that 3-5 year timeframe. I had found ZEOIX to be intriguing when I had looked before but at least at that point it was not ntf through fidelity. Hopefully that has changed. I will do some research on the other funds listed as well. I appreciate everyone's suggestions. -psuche98
I would be cautious of any "intermediate term" bond fund in a period of rising rates, but I would really make sure the duration is something with which you can live. OSTIX, PONDX, BSIIX. Look at the history of the funds you are considering, month-by-month history. Then ask yourself if you are comfortable with the worst-case month and quarter. Perhaps some staggered CDs would be an ok option, too, especially if you can time their maturities with your need for cash. Keep in mind that we have not been in a period of rising rates for a long time, so we may not really know how the funds we select will react. And we saw how quickly muni bonds were beaten up last year.
I like these funds as mentioned above for near cash holdings. They are doing well and the ability to move around in this market gives them an advantage. This fund in particular is doing well.
Then there is this, from the Schwab fund research; "The fund may invest up to 15% of its net assets in companies whose securities may have legal or contractual restrictions on resale or are otherwise illiquid." That does seem high for what is a conservative class of funds.
I'm inclined to suggest that a pocketful of gold coins would suit me just fine as a cash alternative.
Generally, we use cash to represent the most stable and secure proxies for the U.S. Dollar we can find. (*Edit: As @msf mentions further down, cash is also highly liquid.) The best examples would be: short term T-Bills, government money market funds, and government insured bank deposits. However, we all stretch that definition somewhat in pursuit of better return. Who wants to earn a half-percent on an insured bank account?
So it really depends on risk tolerance and what you're trying to achieve. Without checking their most recent literature, I'm fairly confident D&C tries to make DODIX a suitable cash alternative for folks who who have a 3-5 year time horizon (and it's telling that they don't offer a money market fund). They're telling you that you may find yourself on the short end of the stick after 1 or 2 years with this fund, but if you can hang on to the fund for 3-5 years you'll very likely recover at least 100% of your initial principal.
My own working definition of cash is pretty conservative. Not because it's the "right" definition. But simply because that's the way I structure my investments. Cash to me extends only to the reaches of a conservative ultra-short fund like TRBUX. (Not all ultra-shorts are the same.) Since I've owned the fund (about 5 years) I can't remember the NAV deviating by more than 2 cents from it's original $5 offering price. It's been stuck st $5.01 for several months now. That's pretty darn good. And I expect it will soon be yielding above 2%, if it isn't already, as rates trend upwards.
While VUBFX and VUSFX (Vanguard's version of Ultra Short bonds) are only two years old, they have been a little less volitial than TRBUX. yield is about the same but expenses a bit lower..Pretty close to cash for safety
@davidrmoran , the extra cost for C shares of PONDX or PONCX can be considered financial advisory or brokerage fees from my experience. I had to use them (C shares) with the financial adviser who set up a Trust Fund for my mother. They didn't charge a "fee" per say. Rest assured, the extra $ for C shares is going to the Morgan Stanley adviser. That is how Morgan Stanley is collecting money off their services to Ted.
@MikeM is correct. In addition, the use of Class C shares or any class with CDSC shares is problematic for a cash-substitute investment. That's because cash is supposedly liquid, and having a redemption fee (Class C's lasts a year) impairs liquidity.
Thanks for all the good cash substitute suggestions. I used ATOIX and VMMXX in the past, but I am wondering if my cash was wasting away in Margaritaville.
@00BY GADVX is listed as "market neutral " by M* but it is really merger/arbitrage. I would not consider this cash like. The Max DD is 7% and correlation with SP500 between .6 and .79 for merger funds like this. To me "riskless" or "cash" assets should hold their value exactly when everything else hits the wall. While 7% is not doomsday, it is far more than most people would expect. I would put these funds into "non-correlated" assets that you want to largely zig when the markets zag. A true market neutral fund or manged futures (VMNFX, CSAAX,have a much lower correlation with equities, but even those do not substitute for cash.
With the announcement yesterday that CPI is approaching 2%, the "riskless" assets above become somewhat painful. At least their yield should also slowly rise, but there is price for being in cash. This makes it all that much more difficult to make good asset allocation decisions in this environment.
It looks to me that from all the input, the term "cash alternative" is very broad and different in everyone's mind. I would say any fund with a standard deviation much over 1.5 or 2 would be nothing like cash.
@hank. Excellent callout on TRBUX. I wouldn't have known it does not have the 30 day buy back rule. It really would be perfect for my situation. I just need to figure out if the settlement money market fund performance vs TRBUX is even worth it to take the added, albeit smaller risk. The MM fund NAV will stay at $1.0, not the TRBUX.
@hank said "My own working definition of cash is pretty conservative. Not because it's the "right" definition. But simply because that's the way I structure my investments. Cash to me extends only to the reaches of a conservative ultra-short fund like TRBUX." " ...that's money I move in and out of other (equity) funds when opportunities arise. (And one never knows when that might occur.) "
Right on @hank.Some of the funds mentioned have had drawdowns(not extreme,but) at the same time as those possible opportunities may present themselves.When I raise cash/take profits/seek shelter from a storm, my main goal is preservation of capital.Most of my IRA is @Schwab where funds such as TRBUX and ZEOIX carry the $76.00 transaction fee per purchase.A little research after this discussion brought me to CULAX as a good fit in the ultra short space @ Schwab, although the 90 day short term redemption fee has to enter the equation.Good discussion.
yeah, applies and oranges for sure --- PONDX std dev is 2.6 or so and FRIFX is twice that. One site says PDI's is 0.5, which can't be right. Ah, M* says 4.3.
Comments
PTIAX also resides in my tax-deferred account, but I don't consider that as a cash alternative holding. But, some may say SUBFX isn't either, and that may be true as well.
My objective here is 2-3% a year for these, and I will be very happy.
I am really trying to avoid directly holding fund with the fund company. It is just a pain at tax time. Very few funds I own direct. PTIAX is available at brokerages so its a plus. Funny thing is its municipal bond fund has capital preservation in the goal, PTIAX doesn't, and very wierd part is that for fact sheet of PTIAX it mentioned municipal bonds are undervalued while for THAT funds fact sheet it mentions no such thing.
If anyone aware of any manager interviews or something for PTIAX, kindly link. Google didn't help me out, but then you have to know what to search for.
Often mentioned on this board.I own it.Not as a substitute for cash.
2016 Q4 PTIAX -1.12 AGG -2.98
M* Category Multisector Bond-0.51
http://ptiafunds.com/resources.html
Guggenheim fans might look at Guggenheim Enhanced Short Duration ETF (GSY). I screened for funds with the highest 5-year Sharpe ratio. RiverPark is first (that's not unusual), what appears to be a closed-end real estate income fund (BV5J) is second and Guggenheim is third. 1.3% returns but the max 5-year drawdown is 0.1% and the standard deviation is 0.3%. That puts it roughly 1.3% above cash with minimal volatility.
As to Zeo, its maximum drawdown is 1.5% with a recovery period of five months. Over the past five years it's returned 3.4% with a standard deviation of 1.3%.
David
FSICX and DODIX are other things to look at (FBALX also, and similar; also BND, BOND, AOK, and many others). You would have to commit mentally to sticking it out for the six months or whatever when it goes negative. (If any negative turn would be intolerable even briefly, scratch this response.)
-psuche98
I like these funds as mentioned above for near cash holdings. They are doing well and the ability to move around in this market gives them an advantage. This fund in particular is doing well.
Then there is this, from the Schwab fund research; "The fund may invest up to 15% of its net assets in companies whose securities may have legal or contractual restrictions on resale or are otherwise illiquid." That does seem high for what is a conservative class of funds.
http://www.schwab.com/public/schwab/investing/investment_help/investment_research/mutual_fund_research/mutual_funds.html?path=/Prospect/Research/MutualFunds/Summary.asp?symbol=ETNMX
Regards,
Ted
Generally, we use cash to represent the most stable and secure proxies for the U.S. Dollar we can find. (*Edit: As @msf mentions further down, cash is also highly liquid.) The best examples would be: short term T-Bills, government money market funds, and government insured bank deposits. However, we all stretch that definition somewhat in pursuit of better return. Who wants to earn a half-percent on an insured bank account?
So it really depends on risk tolerance and what you're trying to achieve. Without checking their most recent literature, I'm fairly confident D&C tries to make DODIX a suitable cash alternative for folks who who have a 3-5 year time horizon (and it's telling that they don't offer a money market fund). They're telling you that you may find yourself on the short end of the stick after 1 or 2 years with this fund, but if you can hang on to the fund for 3-5 years you'll very likely recover at least 100% of your initial principal.
My own working definition of cash is pretty conservative. Not because it's the "right" definition. But simply because that's the way I structure my investments. Cash to me extends only to the reaches of a conservative ultra-short fund like TRBUX. (Not all ultra-shorts are the same.) Since I've owned the fund (about 5 years) I can't remember the NAV deviating by more than 2 cents from it's original $5 offering price. It's been stuck st $5.01 for several months now. That's pretty darn good. And I expect it will soon be yielding above 2%, if it isn't already, as rates trend upwards.
Regards,
Ted
GADVX is listed as "market neutral " by M* but it is really merger/arbitrage. I would not consider this cash like. The Max DD is 7% and correlation with SP500 between .6 and .79 for merger funds like this. To me "riskless" or "cash" assets should hold their value exactly when everything else hits the wall. While 7% is not doomsday, it is far more than most people would expect.
I would put these funds into "non-correlated" assets that you want to largely zig when the markets zag. A true market neutral fund or manged futures (VMNFX, CSAAX,have a much lower correlation with equities, but even those do not substitute for cash.
With the announcement yesterday that CPI is approaching 2%, the "riskless" assets above become somewhat painful. At least their yield should also slowly rise, but there is price for being in cash. This makes it all that much more difficult to make good asset allocation decisions in this environment.
A few funds I'd look in this category are THOPX, FATRX, and PSHDX.
A Short Term government Bond fund that I'd check out is SNGVX.
In the Intermediate Bond category I'd look at FTBFX, TCBPX, PIOIX, and DODIX.
A consistent performer in the IT Government Bond category would be CUGZX.
So ... there are probably better alternatives to ultra-short if your "cash" is money you intend to leave sitting for a long time.
"My own working definition of cash is pretty conservative. Not because it's the "right" definition. But simply because that's the way I structure my investments. Cash to me extends only to the reaches of a conservative ultra-short fund like TRBUX."
" ...that's money I move in and out of other (equity) funds when opportunities arise. (And one never knows when that might occur.) "
Right on @hank.Some of the funds mentioned have had drawdowns(not extreme,but) at the same time as those possible opportunities may present themselves.When I raise cash/take profits/seek shelter from a storm, my main goal is preservation of capital.Most of my IRA is @Schwab where funds such as TRBUX and ZEOIX carry the $76.00 transaction fee per purchase.A little research after this discussion brought me to CULAX as a good fit in the ultra short space @ Schwab, although the 90 day short term redemption fee has to enter the equation.Good discussion.