I'm looking to implement a market-timing strategy using 10-month moving averages for the different asset classes. My question is where to put the cash when an asset allocation is out of the market. There are money market funds, short-term bond funds, TIPS index funds, and probably other choices. What do folks recommend? I tried several searches, but didn't find the right search words to get the recommendations I'm looking for.Thanks for any help!-Phil
I suspect that this will not provide you with anything you don't already know, but, it kind of depends on what you need and expect for this money. If preservation of principle and immediate availability is required you are pretty much limited to money market funds and money market or savings accounts. Unfortunately, the interest/dividend rates on these accounts are quite low currently. If you can give up the immediate availability you could consider certificates of deposit which would give you a bit more yield. But, if you need to take out money before the CD term is up you might lose some interest.If you want increased potential return and risk you should consider any of the short term bond funds such as those you mentioned. Personally I would probably use a short term corporate bond fund or a muni bond fund if taxes are a big consideration.Bob
Bob, thanks for your response. The funds definitely need to remain liquid -- at the end of each month the moving averages will tell me whether to get back into an asset class or not. It seems to me that this is a question many investors have had to face, and I am hoping that some will share their experiences and hard-earned wisdom.-Phil
The funds definitely need to remain liquid -- at the end of each month the moving averages will tell me whether to get back into an asset class or not.Given this situation it seems like the money should be in the cash portion of the brokerage or mutual fund account.Bob
"High-rate" online savings accounts (FDIC-insured and all) can currently give you between 1.20 and 1.30% APY (ally.com has some, others are offered at Discover for aaii.com members, &c) and may be suitable.No-penalty CDs (where you can cancel w/o penalty at any time, but not as suitable for monthly extraction of small fractions or further deposits in some months) can offer a bit more, maybe 1.40% to 1.50% APY (again check ally.com &c). I think they're probably better used for some portion of your "non-investable emergency reserve cash" (with other portions in longer-term and higher-yielding CDs) rather than for "parking investable cash for a month or so at a time". DO make sure that they're FDIC-insured, that there are no semi-hidden fees, &c.Admittedly the difference between yearly 1.20%, 1.50%, and 0% (what your broker probably pays you for cash just left parked there) ain't much on a one-month basis on reasonably small amounts -- e.g. for (say) $100K, we're talking about $100 vs $125 vs nothing; if (e.g.) wire transfer fees or delays enter the picture, and especially for smaller amounts, it may not be worth the bother.But, all other instruments aren't really cash-equivalent. E.g. LTPZ, a Pimco TIPS index fund, lost 0.68% yesterday, lost 1.5% on Jan 4 (and gained 12% over a year) -- very far from what cash should be doing, in either case. It may or may not be worth a place in your portfolio, depending of course on your approach to diversification, but, don't fool yourself that it's a "cash-equivalent" place to park your dough!-)
It really depends on what you think "cash" is. US Dollars?Thanks to inflation, having you "cash" in a "safe" 10-month savings account could actually mean a net loss to earnings power.Unless it is one of the asset classes you are considering, I'd suggest parking your money in an international currency - specifically precious metals. That will protect you from inflation risk. An easy way to do this is through Exchange-traded shares through a discount broker; you'll pay ten bucks in commission or so and the money will be all of one, maybe two business days away with a wire transfer option.Right now that points me toward SLV silver shares, mostly because silver is trading at a much lower ratio than historically.Of course, ten months isn't a long time, and silver has some risk. You'll want to do your own research.But don't kid yourself: Due to inflation, "parking" your cash in a savings account also creates it's own kind of risk. What was that song by Rush about Freewill? "If you choose not to decide you still have made a choice"?Fool on, buddy. :-)
That is, lower silver-to-gold price ratio than historic. Another line, this one from Jerry Weinberg:"The 3rd rate mind is only happy when his thinking aligns with the majority.The 2nd rate mind has seen the problems with the majority, and is only happy when his thinking aligns with the minority.The 1st rate mind? He's only happy when he's /thinking/."
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