Of course the return on cash is laughable, I've loaded up my max I-bonds for this year (which I like because of the tax-deferred nature, they make a good emergency fund.) I'm in my mid-40s and still have a ways to go until retirement - hopefully an early one - and I need a place to park cash since I'm a bit risk averse. And I have a lot of cash, way too much for an emergency fund.
So - more RPHYX? Maybe intermediate bond ETF like BIV? Switch my cash into large cap growth and transfer my 401k/IRA to be more heavily into bonds to avoid the tax on dividends (which I did with VIPSX years ago)?
Comments
Like you, we are also heavily into RPHYX. In very round numbers, last year, it did 2.6%, after the IRS, 1.9%. Subject to some risk, completely uninsured, of course.
So far this year, 0.6% / 0.4%. Wow.
We also have some cash stashed in various bank accounts, earning next to nothing.
I just don't know. One thing about RPHYX- it wouldn't take much in the way of NAV decline to pretty well offset the small dividend return.
Which is why now I'm thinking that short or intermediate-term munis may be a good idea, though PFF sounds like an interesting strategy (I remember learning about preferred stock back in the day as "these are out there but really look into stocks or bonds.") Which term do you like better for munis?
Derf
Yes, that's really an important question. I remember reading some time ago that other funds and investors were digging in that same cabbage patch. Maybe the cabbages are almost gone?
Good investing,
Derf
Regards,
Ted
http://www.ishares.com/us/literature/fact-sheet/pff-ishares-u-s-preferred-stock-etf-fund-fact-sheet-en-us.pdf
RSIVX is up 1.3% YTD, not too bad, but it's also a different animal than RPHYX.
One reason that I like those two is that they're NTF at Schwab, so easy to get into and out of cheaply.
That being said, the relatively small amount that RPHYX pays is certainly better than my remaining MF MMKT accounts, which have paid NOTHING for at least five years now, but have maintained their $1.00 share value. The only thing supporting those funds is the good faith of the MF families, American Funds and American Century.
From the website of Cohanzick Management (the subadvisor for RPHYX and RPIVX):
http://www.cohanzick.com/our-story/strategies
Note the sentence at the bottom of this page:
"All of our investment strategies are speculative and involve significant risk including, without limitation, the loss of principal."
Does that sound like a "cash account substitute"? I think these funds were intended to play an enhancing/supportive player role in a short duration/ST strategy [and for that I'm very grateful; I'm in RPIVX]; I don't think they were intended as replacement for everything else in this space. Just my take.
@heezsafe: Well, it seems to me that it does have some attributes of a cash-equivalent account, if you consider MF MMKT funds to be that. Money-market funds use their capital to make relatively short-term loans, and, in the old days, their so-called "dividends" were really just a cut of the interest that the MF company obtained while lending those funds. While they also had disclaimers similar to the one that you mention, it was generally believed to be with "a wink and a nod", as the MF companies tried very hard to maintain the $1.00 NAV, and generally succeeded.
If you recall, to prevent a massive run on those accounts, which would have reverberated through the entire economic structure, the government quickly "guaranteed" the safety of those funds for quite a while. It was that necessity which scared the government into trying later to pressure the MFs to cut loose the $1.00 NAV, and make clear the possibility of "without limitation, the loss of principal." But so far, not much change there.
As I tried to say above, a fund like RPHYX looks to me to be structured in the way that the government would now like MMKT funds to be: low risk (with RPHYX due to the ultra-ST commercial paper that you mention), no guarantee implied, and no artificial maintenance of the NAV.
It seems to me that the main problem with the governments MMF wish-list is that no one wants to borrow the money that's sitting there in all of those MMKT funds. Why would a company bother borrowing short-term when they can borrow long term at incredibly great rates? So the MMKT fund money just sits there, shrinking a bit as the theoretically non-existent inflation termites actually eat away at the pile, slowly but surely.
The only reason that RPHYX works at all is because they don't loan new money, but rather buy up the tail-ends of old loans that are just about to mature. Unfortunately, there is a limited supply of that kind of stuff.
Derf
Part of the problem with them was overzealous marketing - TDAmeritrade settled a suit because it had marketed Reserve Yield Plus as a MMF, which it was not. Part of the problem was miserable risk management by some of these funds. From Kiplinger, Are Money-Market Funds as Good as Cash (a prescient article from March 2008):Despite the notoriety that Reserve got (much of it deserved, for the way it went after Lehman bonds), I'm one of the very few who feel that Reserve Yield Plus was a fine fund, likely the best enhanced cash fund. It maintained an extremely stable NAV (unlike ultra short bond funds), and provided decent return. Exactly what an enhanced cash fund should do.
When the fund collapsed, its NAV dropped only 3% - compare that to the above named ultra short funds from Fidelity and Schwab. And even that was in part due to a foolish (IMHO) run on the fund by investors. As mentioned above, TDA had sold this fund as a MMF-equivalent, thus when its sibling Reserve Prime, a true MMF broke a buck, people panicked.
Despite its holdings in Lehman, despite the demise of this fund, I think it shows that enhanced cash funds can work (if not oversold to people expecting MMFs). For the most part, this type of fund doesn't seem to exist any more. RPHYX might be considered a version 2.0. But I think it is unique, and as OJ commented, not reproducible (limited supply). I'll offer thoughts on a couple of other alternatives in another post tomorrow or Thurs.
Regards- OJ
@msf given how much time I've expended, trying to come up with other good alternatives, I'll look forward to any thoughts you have come by on the matter.
Unless the manager is having trouble finding investments, and the 3.5% cash stake does not indicate that, why look elsewhere?
But I'm not putting all my cash here. I like to have a chunk of cash that is truly cash, with a government guarantee if possible.
http://www.mutualfundobserver.com/2014/07/zeo-strategic-income-zeoix-july-2014/
Derf
As we all scramble for yield … I guess … perhaps some are willing to broaden their definition for cash and what it’s equal might be. For me, real cash would be US currency, FDIC bank deposits, savings accounts and some cd’s along with short term treasuries. At one time I included brokerage and fund company money market accounts; but, no more unless they are FDIC insured.
Even though gold and silver might be a store of value and offer barter capacity ... for me ... they are not cash.
So, when Old_Skeet says he has fifteen percent in cash … He really does.
Additional Note 1:
One of the things I have done to make my cash productive is to open and close special spiff investment positions form time-to-time.
My last spiff was opened around October of 2014 with an average cost on the spiff with a cost reading on the S&P 500 Index at 1905. Thru March 20th of 2015 this position is now up about 10.4%. Since, I am currently at about 15% in cash as I write I have left the spiff open and will most likely close it out as we approach summer and before if stocks go soft as we approach 1Q2015 earning reporting season.
When the spiff is fully closed out, this will raise my cash allocation to about 20% and reduce my equity allocation to about 50%. From a tax strategy stand point this spiff strategy is usually done in my self directed ira account thus avoiding capital gains taxes that would be due on the gains if done in a taxable account.
Come late summer or early fall, I will usually start another special equity spiff position in this seasonal strategy and fund it from the cash area of the portfolio rather than utilizing margin based funding that would eat into profits. And, if done on margin that would put the action in the taxable account and make the gains taxable.
Additional Note 2:
Booked profit in special spiff today with the market headed downwards on economic data and news. And, I am not to hopeful 1Q2015 earnings are going to be all that good. Profit over about a six month holding period was 8.2% plus dividends.
Old_Skeet
It's not a true cash substitute since you are dependent upon the manager's judgment that these holdings really are "money good" (and there is that temporary effect on the fund's NAV from the junk bond market even if things work out as planned), but I believe that the manager has always made this clear.
Cash seems to have widely varying definitions and widely varying purposes among investors. And it's natural to climb the ladder a little in search of something better than 0%. Even 2 or 3% on RPHYX looks good by comparison. No objection to that. But, it's not "cash" in the most basic traditional sense of the word.
I'm not sure one's definition of cash (or "enhanced cash" as someone put it) really matters a whole lot. I guess if you're running your household budget under really tight constraints, or meeting a weekly business payroll, or running a tax-funded government entity, than precise dollar amounts are critical to the operation and you best keep the necessary money in insured deposits or TBills.
For most of us however, fluxuations of 2, 3 or even 5% on our short term reserves (cash and cash substitutes) really isn't all that worrisome. We can take a bit more risk and accept those fluxuations. MSF makes a good point about some of the ultra-shorts that took a big hit during the '08 meltdown. Yes, they didn't appear all that risky before the crisis imploded. I have no answer to that one. A valid point.
I earn 0% on my Prime Reserve fund at Price and 0% on a couple checking accounts. But wait a second ... I'm actually receiving compensation through a wide range of services. These include free check-writing and electronic fund transfers. Free 24-hour online access from any device. Free phone numbers and live agents able to respond to account related questions or provide guidance. Also, live tellers at their branches, convenient credit cards and debit cards linked to these accounts and many other free or discounted services. That's a lot of "free" stuff available to me to in return for those cash deposits.
In the case of Price, keeping cash with them allows free and immediate access to any of their 100+ quality funds at literally the touch of a keypad. And exchanges between these great funds and my Prime Reserve account are conveniently exempted from their excessive trading restrictions. If I need some of the cash, they quickly transfer it to to my bank of record. Again at no fee. So, besides the higher stability of these low yielding cash accounts, I'm actually receiving quite a bit in return.
Advice to the original poster. Don't put all your eggs in one basket. As compelling as RPHYX may appear, spread your short term holdings (assuming they are significant) around a little.