I know this topic has been tossed around numerous times on this board, but I'm always looking for suggestions on what to do with my cash. I'm 50 years old with more than $100,000 sitting in banks and credit unions earning about 0.50 % in interest. I know it will erode in value over time due to inflation, so I would like to beat that at the very least without taking a big risk with principal. I already have nearly $1M in a conservative portfolio (35% Bonds) (40% equities) (25% cash) so I'm looking to do something with a portion of the cash. Part of it should stay in an emergency fund, but I have about $100,000 that doesn't need to be used for at least 3-5 years. I call it "near cash." I've been looking at a few suggestions on the board, such LALDX, OSTIX and RSIVX. It appears that interest rates will be higher over the next few years so I do have to take that into consideration with any bond funds. Any other suggestions? Thanks in advance.
Comments
What is the goal of you "near cash".
Regards,
Ted
That puts pretty tight limits on what one can do with the money. Otherwise, I wouldn't consider it part of a "cash" allocation. In other words, I tend to be a bit more cautious with cash. YMMV.
So I like the NTAUX suggestion (I wasn't familiar with this fund). Unfortunately, while it beats your current 0.50% taxable yield (since it's a muni fund), its 0.50% tax-free yield still doesn't beat FDIC-insured internet banks (yielding around 1% taxable now).
I also like FPNIX (and have suggested it before myself). I'm comfortable with its junk bond (BB) rating, but only because I've followed this fund for years (never invested). Otherwise, I'd be leery of delving into junk now, especially with my cash allocation.
Another thought is to use defined maturity bond funds. Here's an AAII paper explaining them, discussing the pros and cons, and listing (most of) the current options. (It omits the older American Century Zero Coupon series, which will be more volatile because with zeros, duration = maturity).
If you're fairly sure you won't need the cash for 4-5 years, you might use an "immunization strategy". You can buy a fund like FMCFX (maturity 2019, muni bond fund, SEC yield 1.13%; it beats iShare's 2019 IBMH's 1.07% SEC yield w/o bid/ask spread); or Guggenheim's BSCJ (2019, corporate inv. grade, SEC yield 1.83%).
This is assuming BERIX and VWINX are too risky for your taste.
Different paths to the same end. As you note, performance is very similar after expenses. Which suggests that the modest incremental cost of the more wide ranging fund has been paying for itself, even in a pretty constant low interest environment. When the markets shift sooner or later, I expect its defensive strategies to show their mettle.
If one just looks at average figures (which, especially in the case of FPNIX I feel do not tell the whole story), one is getting double the SEC yield and duration that's only 3/4 as long (1/2 year shorter) in exchange for diving into some junk. (Though nearly 70% of the fund's bonds are AAA rated - more than BSBIX's AAA, AA, and A combined.)
I'm a fan of Baird funds, so I'm not knocking BSBIX. Rather, I'm addressing what is different about FPNIX.
I should think if the original poster is willing to wait 3-5 years that pretty much any solid short term bond fund will provide a small gain (maybe 2% or so). I wouldn't argue against either BSBIX or FPNIX, or even ZEOIX or RSIVX (which are quite different but still pretty safe over 3-5 years, I think).
DODIX has done surprisingly well the past few years. Surprised me - and I own it, but am cutting back. They've kept maturities on the shorter end in recent years, but are still out there a bit. Will take a modest hit if rates rise sharply. Their most recent fund report alluded to concerns over heavy inflows and hinted they might have to close the fund at some point.
There's one problem with heavy inflows. That $$ can reverse and flow back out even faster than it flowed in - and they know it.
Everybody's chasing yield.
MSF, What is YMMV?
https://solarbonds.solarcity.com/available-bonds/
I am sure there are others, but this is a v good outfit, I know from experience.
Just for example, Ally bank pays 0.99%, FDIC insured, savings acct, without locking your money up at all, and several others pay 1% or even very slightly higher. These are name banks (well known), also FDIC insured
You can also get 2.25% in FDIC insured 5-year CD's at several internet banks (e.g., Synchrony Bank).
One strategy several Bogleheads are using is to do this at a bank with a low early withdrawal fee. I believe there is an FDIC insured internet bank with only a 90 day interest early withdrawal penalty, so many Bogleheads are going that route, figuring that paying a 90 day interest rate penalty in the event that rates rise significantly and they want out of their 5-year 2.25% interest CD is not too bad.
I strongly suggest that the original poster take a good look at these risk factors if he's considering this SolarCity offering.
That rules out "couch potato" portfolios. What do people feel is a maximum percentage to allocate to a holding, or should it be a dollar amount (so a $5M portfolio might hold 50+ funds)?
JohnC is correct that "funds-of-funds" should be viewed differently and might warrant a higher allocation. One of these, RPSIX, currently comprises my largest holding at just over 14%.
1. I prefer to view money management decisions in terms of percentages (not in dollar sums).
2. I don't have set limits. However, I become uncomfortable when any one fund exceeds about 20% of total assets. With equity funds, 10% in any single fund is enough.
3. I believe it's wise to diversify (fairly evenly) among at least 3 different fund houses or other custodians.
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Added: The above reflects the thinking of a 70+ year-old, 15-20 years into retirement, already in the distribution stage. Were I younger, I'd have a higher risk tolerance and would be much more concentrated in a few good growth funds.