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$2.50 a Year in Interest? That’s What $5,000 in Savings Gets
Just think, with the power of compounding, after just two years, one would have not 0.10% (2 x 0.05%) in total interest, but a whopping 0.100025%! And it only gets better after that.
With the help of an MFO profile and discussion by @hank and others here, I put a big chunk of my MMF holdings into TMSRX. Even my timid daughter did the same with some of her cash. She kept asking me why her MMF was generating only pennies a month. I told her she had to take some risk and be willing to leave the money alone for many months.
We are on this site because we want to read and discuss investments but this is another typical catchy article with no substance. I like articles with solutions instead of stating the obvious. The following are a decent place instead of MM. They are not guaranteed, and they lost money in the last Black Swan(up to 2-3%) but you shouldn't invest for years to come based on that.
ICSH JPST BSV=VBIRX
=========== TMSRX is another animal. There are many bond funds to select from. It lost over 9% in the last meltdown (peak to trough)
TMSRX is another animal. There are many bond funds to select from. It lost over 9% in the last meltdown (peak to trough)
Huh? TMSRX opened in February, 2018 - so is less than 3 years old. I checked at Yahoo and could find no record of a 9% drawdown.
I’ve owned it since inception and recall that it stumbled out of the gate when the AUM was very low. So it likely ended 2018 in the red. Allowing for that, 9% drawdown sounds a lot higher than I recall in 2018. I really can’t imagine it falling that far over any given 12-month period. But, it is new and untested.
I use it in my alternative investments sleeve. However, I’ve sometimes thought it might fit in as an income fund, with volatility similar to a short / medium duration bond fund, but much less susceptible to interest rate risk. I would not use it as a cash alternative - but have no serious argument with those who might do so.
Chart for TMSRX from Lipper. Note the fund’s performance in dark colors (red/green) contrasted with similar funds shaded in lighter shades. Here’s the link..
As FD1000 has written elsewhere and here, one shouldn't plan one's life around black swan events. Though as I've written before, what some call black swan events happen with almost predictable regularity.
Because of Fed intervention (IMHO that was the true black swan), the loss for TMSRX was short lived. For an enhanced cash-ish holding, time to breakeven would seem to be a metric one might care more about. One might be willing to wait a few months in exchange for not losing any value.
By that measure, the timeframe to look at for TMSRX is 4/4/18 (peak) to 12/27/18 (trough, down 4.99%) through 7/1/19 (full recovery). 15 months under water.
In comparison, VBIRX dropped from 11/7/2001 to 12/17/2001 by 1.91%, taking until 5/22/2001 to fully recover, about half a year. Similar half year periods include: 3/16/04 (peak) to 6/14/04 (down 2.7%) to 9/16/04 (full recovery); 10/26/04 (peak) to 3/28/05 (down 1.4%) to 5/18/05; 3/17/08 (peak) to 6/13/08 (down 2.3%) to 9/8/08; 11/4/10 (peak) to 2/8/11 (down 1.8%) to 5/16/11; 5/2/13 (peak) to 7/5/13 (down 1.4%) to 11/26/13.
I consider these half year spans acceptable timeframes; the fund is not a checking account.
FWIW, there were a couple of more extended periods under water (albeit shallow water): 7/5/16 (peak) to 12/15/16 (down 1.8%) to 6/2/17 (11 months); 9/8/17 (peak) to 5/16/18 (down 1.8%) to 12/18/18 (15 months).
If sharp drops are what concern you, then look at Veteran's day, 2003. VBIRX spiked 4.1% from the day before, and dropped back down 3.8% the next day. While this might seem to violate the "definition" of black swan because it is not unexpected (bond market closed while stock market open invites bond fund weirdness), the spike wasn't predictable. It seems to have been the only such spike. Also, the fund took over 1.5 years to recover full value on 6/1/2005.
At the end of the day I look at SEC yield. VBIRX's SEC yield is 0.34% (source: Vanguard). ICSH is 0.39%. JPST is 0.51%. (ETF source: Fidelity) Ally Bank will pay you 0.60%, FDIC insured, rate guaranteed for 11 months, and you can get your money out at any time. The only strings are: the withdrawal is all or nothing, and you can't withdraw in the first seven days.
To do significantly better, one is going to have to move up the risk spectrum. Whether that is length of time to avoid loss, maximum potential loss, likelihood of being down at any given moment, or some other measure, something has to give.
@Catch22 - Thanks. The roof fell in on a lot of stuff in March. I was busy buying up stuff, so didn’t pay much attention to short term losses. TRBUX, the ultra-short, which I also have held from inception, dropped about a dime during that brief period (from its $5.00 peg). It had been very stable for years. Clearly, something was very amiss in the credit markets - which @msf alludes to above. Considering that some equity funds fell 25-35% during March / April, a 9% loss looks tolerable. As I noted earlier, I wouldn’t use this fund as a cash substitute.
Since when do we consider 15-days to represent “peak to trough” when speaking of mutual funds? Anybody with a 15-30 day time horizon should rush on down to their local bank and deposit said funds in an insured passbook account.
The magnitude of the short-lived market disruption is summarized well by Wikipedia:
“The 2020 stock market crash, also referred to as the Coronavirus Crash, was a major and sudden global stock market crash that began on 20 February 2020 and ended on 7 April. The crash was the fastest fall in global stock markets in financial history and the most devastating crash since the Wall Street Crash of 1929.”
@hank I didn't mean to imply a longer term draw down for the fund in question, but that this fund reacted as did most bond funds during the "everything" melt in March, until the FED arrived. We continue to maintain our largest bond holding of the plain vanilla, BAGIX.
hank, from your link, this thread is about "The average rate paid by banks on basic, federally insured savings accounts"
Someone who seriously looks for the above isn't going to invest in a fund that lost about 9% as TMSRX. This is why I posted about ICSH, JPST, BSV=VBIRX. There are several banks that will pay much higher than 0.05% but the writer as many other is lazy and/or doesn't want to do extensive research for serious options.
There are several other options but it depends on what you are trying to achieve. Do you want/need? Ballast, higher income, more performance, lower taxes.
As you know I try to avoid black swans and why I'm out when risk is elevated and I don't like market conditions. It also depends on your style. I'm a trader. While IOFIX was down sharply (just in 3 weeks), it's up over 50% since the crash. I love short term volatility and then calm water.
@FD1000 - You caught me off guard with the “peak-to-trough” lingo. Frankly, other than from John Hussman, I haven’t heard the term tossed around much. When Hussman uses it he’s usually also referencing a complete market cycle (measured in years). Yes - I suppose even 3 days could constitute “peak-to-trough”, as in the case of a money market fund breaking the buck.
I took your response as a reference to @BenWP’s mention of using TMSRX to invest some cash. One thing I assiduously try to avoid is “second-guessing” or criticizing investment decisions reported by other members. That’s because I don’t know their full circumstances or what they intend to achieve. I know Ben to be a very experienced investor, so if he made a determination, after looking at the charts, that the fund satisfied his needs, I’ll let it be. It’s not for me to suggest an alternative fund - unless he so requests such assistance.
Many of us have been “reaching for yield” in a very low interest rate environment. For portfolio positioning, some of us take (and have been taking) a “liberal” approach to cash - though technically it means “risk-free“ money. I just threw a bunch of idle cash into PRIHX, an intermediate-term junk bond fund. I’m fully aware I might lose a bit on the move - but I’m willing to take that risk.
Whatever tightens your screw Whatever rings your bell Whatever floats your boat Whatever greases your pan And if solo guitar is what starts your car Here comes the guitar man.
Whatever tightens your screw Whatever rings your bell Whatever lights your fire Whatever blows back your hair And if two guitars makes you see stars Then here’s a pair.
Whatever thickens your bisque Whatever answers your prayer Whatever downloads your disc Whatever loads your software Whatever pulls your cork Whatever ripens your cheese And if solo piana is what peels your banana More piano please.
Whatever fires your jets Whatever lifts your kilt Whatever grinds your beans Whatever milks your cow And if a little drum break can bake your cake Well, here’s one right now.
Edited and condensed from “Whatever Floats Your Boat“ - by Garrison Keillor
The nice thing about cash is that it's there to buy assets that have taken a beating.
I never had cash long term and hope not to have in the future. I'm only in cash short term, usually days to 2-3 weeks when markets are risky which I determine according to several indicators (VIX and others). Since 2009, which is 11 years, I have been in 30-100% cash about 12 weeks which is about 2%. This means I was invested at 99+% at about 98%.
Why I don't have cash? 1) because I have made a lot more money in bond funds. 2) If I want to trade risky stuff, I buy it and sell my bond funds on the same day. You can do it at Schwab but not Fidelity. 3) At retirement and for decades I only have several thousands in my bank. There are no emergencies or other incidents where I needed the money within hours unless its illegal drugs or ransom. I can always use my credit cards and pay weeks later. For a larger amount I can sell my mutual funds and get the money within 1-2 days. At retirement: if you need cash for expenses and as part of asset allocation you can sell just some share only when you need more money. When stocks are up, sell from stocks, when stocks go down sell some bonds and you better have a portion in ballast bonds. Sure, having 2-3 months in cash isn't a big problem but not 1-2 years.
Comments
Just think, with the power of compounding, after just two years, one would have not 0.10% (2 x 0.05%) in total interest, but a whopping 0.100025%! And it only gets better after that.
I like articles with solutions instead of stating the obvious.
The following are a decent place instead of MM. They are not guaranteed, and they lost money in the last Black Swan(up to 2-3%) but you shouldn't invest for years to come based on that.
ICSH
JPST
BSV=VBIRX
===========
TMSRX is another animal. There are many bond funds to select from. It lost over 9% in the last meltdown (peak to trough)
I’ve owned it since inception and recall that it stumbled out of the gate when the AUM was very low. So it likely ended 2018 in the red. Allowing for that, 9% drawdown sounds a lot higher than I recall in 2018. I really can’t imagine it falling that far over any given 12-month period. But, it is new and untested.
I use it in my alternative investments sleeve. However, I’ve sometimes thought it might fit in as an income fund, with volatility similar to a short / medium duration bond fund, but much less susceptible to interest rate risk. I would not use it as a cash alternative - but have no serious argument with those who might do so.
Chart for TMSRX from Lipper. Note the fund’s performance in dark colors (red/green) contrasted with similar funds shaded in lighter shades. Here’s the link..
-
TMSRX NAV on March 3 = 9.87, NAV on March 19 = 9.00.
This is a - 8.8146% change.
NAV change
Disclaimer: do not and will not have any money with this fund.
Because of Fed intervention (IMHO that was the true black swan), the loss for TMSRX was short lived. For an enhanced cash-ish holding, time to breakeven would seem to be a metric one might care more about. One might be willing to wait a few months in exchange for not losing any value.
By that measure, the timeframe to look at for TMSRX is 4/4/18 (peak) to 12/27/18 (trough, down 4.99%) through 7/1/19 (full recovery). 15 months under water.
In comparison, VBIRX dropped from 11/7/2001 to 12/17/2001 by 1.91%, taking until 5/22/2001 to fully recover, about half a year. Similar half year periods include:
3/16/04 (peak) to 6/14/04 (down 2.7%) to 9/16/04 (full recovery);
10/26/04 (peak) to 3/28/05 (down 1.4%) to 5/18/05;
3/17/08 (peak) to 6/13/08 (down 2.3%) to 9/8/08;
11/4/10 (peak) to 2/8/11 (down 1.8%) to 5/16/11;
5/2/13 (peak) to 7/5/13 (down 1.4%) to 11/26/13.
I consider these half year spans acceptable timeframes; the fund is not a checking account.
FWIW, there were a couple of more extended periods under water (albeit shallow water):
7/5/16 (peak) to 12/15/16 (down 1.8%) to 6/2/17 (11 months);
9/8/17 (peak) to 5/16/18 (down 1.8%) to 12/18/18 (15 months).
If sharp drops are what concern you, then look at Veteran's day, 2003. VBIRX spiked 4.1% from the day before, and dropped back down 3.8% the next day. While this might seem to violate the "definition" of black swan because it is not unexpected (bond market closed while stock market open invites bond fund weirdness), the spike wasn't predictable. It seems to have been the only such spike. Also, the fund took over 1.5 years to recover full value on 6/1/2005.
At the end of the day I look at SEC yield. VBIRX's SEC yield is 0.34% (source: Vanguard). ICSH is 0.39%. JPST is 0.51%. (ETF source: Fidelity) Ally Bank will pay you 0.60%, FDIC insured, rate guaranteed for 11 months, and you can get your money out at any time. The only strings are: the withdrawal is all or nothing, and you can't withdraw in the first seven days.
To do significantly better, one is going to have to move up the risk spectrum. Whether that is length of time to avoid loss, maximum potential loss, likelihood of being down at any given moment, or some other measure, something has to give.
Since when do we consider 15-days to represent “peak to trough” when speaking of mutual funds? Anybody with a 15-30 day time horizon should rush on down to their local bank and deposit said funds in an insured passbook account.
The magnitude of the short-lived market disruption is summarized well by Wikipedia:
“The 2020 stock market crash, also referred to as the Coronavirus Crash, was a major and sudden global stock market crash that began on 20 February 2020 and ended on 7 April. The crash was the fastest fall in global stock markets in financial history and the most devastating crash since the Wall Street Crash of 1929.”
I didn't mean to imply a longer term draw down for the fund in question, but that this fund reacted as did most bond funds during the "everything" melt in March, until the FED arrived.
We continue to maintain our largest bond holding of the plain vanilla, BAGIX.
Someone who seriously looks for the above isn't going to invest in a fund that lost about 9% as TMSRX. This is why I posted about ICSH, JPST, BSV=VBIRX.
There are several banks that will pay much higher than 0.05% but the writer as many other is lazy and/or doesn't want to do extensive research for serious options.
There are several other options but it depends on what you are trying to achieve.
Do you want/need? Ballast, higher income, more performance, lower taxes.
As you know I try to avoid black swans and why I'm out when risk is elevated and I don't like market conditions. It also depends on your style. I'm a trader. While IOFIX was down sharply (just in 3 weeks), it's up over 50% since the crash. I love short term volatility and then calm water.
@FD1000 - You caught me off guard with the “peak-to-trough” lingo. Frankly, other than from John Hussman, I haven’t heard the term tossed around much. When Hussman uses it he’s usually also referencing a complete market cycle (measured in years). Yes - I suppose even 3 days could constitute “peak-to-trough”, as in the case of a money market fund breaking the buck.
I took your response as a reference to @BenWP’s mention of using TMSRX to invest some cash. One thing I assiduously try to avoid is “second-guessing” or criticizing investment decisions reported by other members. That’s because I don’t know their full circumstances or what they intend to achieve. I know Ben to be a very experienced investor, so if he made a determination, after looking at the charts, that the fund satisfied his needs, I’ll let it be. It’s not for me to suggest an alternative fund - unless he so requests such assistance.
Many of us have been “reaching for yield” in a very low interest rate environment. For portfolio positioning, some of us take (and have been taking) a “liberal” approach to cash - though technically it means “risk-free“ money. I just threw a bunch of idle cash into PRIHX, an intermediate-term junk bond fund. I’m fully aware I might lose a bit on the move - but I’m willing to take that risk.
Have a nice day.
Whatever tightens your screw
Whatever rings your bell
Whatever floats your boat
Whatever greases your pan
And if solo guitar is what starts your car
Here comes the guitar man.
Whatever tightens your screw
Whatever rings your bell
Whatever lights your fire
Whatever blows back your hair
And if two guitars makes you see stars
Then here’s a pair.
Whatever thickens your bisque
Whatever answers your prayer
Whatever downloads your disc
Whatever loads your software
Whatever pulls your cork
Whatever ripens your cheese
And if solo piana is what peels your banana
More piano please.
Whatever fires your jets
Whatever lifts your kilt
Whatever grinds your beans
Whatever milks your cow
And if a little drum break can bake your cake
Well, here’s one right now.
Edited and condensed from “Whatever Floats Your Boat“ - by Garrison Keillor
Why I don't have cash?
1) because I have made a lot more money in bond funds.
2) If I want to trade risky stuff, I buy it and sell my bond funds on the same day. You can do it at Schwab but not Fidelity.
3) At retirement and for decades I only have several thousands in my bank. There are no emergencies or other incidents where I needed the money within hours unless its illegal drugs or ransom. I can always use my credit cards and pay weeks later. For a larger amount I can sell my mutual funds and get the money within 1-2 days.
At retirement: if you need cash for expenses and as part of asset allocation you can sell just some share only when you need more money. When stocks are up, sell from stocks, when stocks go down sell some bonds and you better have a portion in ballast bonds. Sure, having 2-3 months in cash isn't a big problem but not 1-2 years.