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09-01-2018, 02:23 AM
(This post was last modified: 09-01-2018, 02:25 AM by crimsonghost747.)
That question sounds strange but I have to ask since I quite frankly haven't figured out a good solution for myself yet.
The history: I make quite a lot of extra right now and I've been pretty evenly splitting the "leftover" between my investment account (mainly DGI stocks) and a cash account. The point of this cash account was to serve as a downpayment for an apartment/house or possibly as ammo in case there is a large pullback in the stock market.
Overtime the balance of the cash account became large, maybe a bit too large. Buying a house/apartment is still the dream but looks like it won't happen at least for a year or two. I was still quite happy holding this cash since I got a 1.75% interest rate on it. Everything was fine.
Until yesterday. I got an email from the bank saying that they are reducing the interest rate from 1.75% to 0.75%.
So. I got a decent amount of money that will be losing the majority of it's income generating potential in a month. Currency is euro so it's really hard to find any decent yielding savings accounts or bonds.
Thoughts so far:
-stop adding new money to cash account, invest all of the "extra" each month. But this is risky at the current valuations and doesn't remove the fact that I have a lot of cash that is losing value to inflation.
-find a safe and reliable cash account with a decent yield in a foreign currency and hedge it.
Any other options, no matter how far fetched, are welcome. I have a month to figure this out.
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Does your brokerage account have a money market near 2% ? I'd keep some powder dry for a market pullback. I sure can't time the market, but do know over valued when I see it. It will make an incredible difference in your long term returns if you catch only a few dips long the way.
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Brokerage (IB) gives me 1.42% for USD and 0% for EUR.
Given the fact that I use EUR for my expenses now, and most likely in the future too, I'd very much like to hedge other currencies. And that brings costs...
If I do decide to go with USD based, and most likely hedge it, then I'd have to be looking at 3% yield or so... I guess that might be doable with some bonds. I'll have to look into it.
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09-01-2018, 07:48 AM
(This post was last modified: 09-01-2018, 07:52 AM by fenders53.)
I would be cautious with bond purchases at this time. Interest rate increases will not be kind to them. Many bond funds have lost value the past 12 months. That isn't acceptable to me given the low yields.
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09-01-2018, 08:55 AM
(This post was last modified: 09-01-2018, 08:56 AM by crimsonghost747.)
ohh no I'm not even considering touching a bond fund. Never have, and I probably never will.
However, individual bonds can be very safe and provide decent yield. The key is to hold until maturity so you basically negate interest rate risk.
I looked at what IB has to offer and I could certainly build a decent portfolio of CDs, T-notes and corporate bonds with the whole package yielding around 3%.
However the currency becomes a problem, I'll have to look at different methods of hedging and how much they would cost.
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Unless you have access to better yields then I do, it sounds like your cash becomes locked up and not available for a home purchase, or stock market crash fund? Unless I don't understand exactly what you are planning.
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09-01-2018, 11:19 AM
(This post was last modified: 09-01-2018, 11:22 AM by crimsonghost747.)
The bonds can of course be sold, and I imagine that all the CDs and T-notes that IB has are aftermarket so I should be able to sell them again should I wish to do so. But I have to verify that.
But yes, the point would be to buy and hold until maturity. The house is not an urgent matter, it won't happen in the next 12 months. A market crash could happen. But I'm not too worried about the money being locked up for a few months, I do plan on keeping a bit (maybe 15%) as pure cash and if the rest is in a laddered portfolio (say with maturities at 2,4,6,8,10 and 12 months) then the majority of it should become available during a bear market.
This is kinda starting to sound like a plan, however I still need to figure out the currency hedge because the price of that is what decides if it's worth doing this instead of just sticking with 0.75% while keeping it in Euros.
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Yes the bonds can be sold but if you get upside down in them due to an interest rate move you've defeated the purpose of getting a yield to beat inflation. That was my only point. Your hedging idea sounds good, but I'd stay a little cashy for your possible future uses stated in your first post.
Due to leaving my employer retirement account last week I am EXTREMELY cashy right now and I don't like it as I have always been in the equity markets. So I am exploring some of the same things you are. I am not a bond expert by any stretch of the imagination.
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(09-01-2018, 11:29 AM)fenders53 Wrote: Yes the bonds can be sold but if you get upside down in them due to an interest rate move you've defeated the purpose of getting a yield to beat inflation. That was my only point.
Yes that is true. Then again, only reason for me to sell the bonds would be to get some good bargains in a bear market. I don't mind losing 5, 10 or even 15% of value on the bonds if that means I can buy some quality stocks at 20% or 30% lower than now. Lots of other options there too, such as using the bonds as collateral to get a loan. Then I can let the bond run until maturity while still getting some cash to buy the dip.
You are certainly in a better spot than I am, as the rates you get with USD are significantly better than those you can get with EUR.
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I like Mikes CD idea much better than a bond you may cash. Multiple CDs even better. You could still leave a CD alone and suffer no interest penalty if you truly needed to cash one out. Accepting a 5% loss on an early bond sale that doesn't even yield that much in the first place does not pass my risk/reward requirements. It makes staying in cash for minimal yield look pretty good IMO.
Offtopic but my new broker is Vanguard. They are pretty famous for low fees and small investor friendly. I don't think they have even one bond fund that isn't upside down for the past few years. It's not like they are incompetent. Bonds are just that horrible in this rising rate market that pretty much bounced from free credit. Vanguard suggests I invest 40% of my port in bonds due to my age. I don't think so anytime soon. Think I'd rather just ask Mike where the good US CD rates are and call it a day. 
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I can't seem to open the CD link.
Just out of interest, what sort of yields are they offering for a 1 year CD?
As I said, the ones I can buy from IB are around 2.9%. And I'm pretty much limited to that as opening a bank account (or anything similar) in the USA would be too much of a hassle.
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