Best Vehicles For Dry Powder in Brokerage Accounts
Best Vehicles For Dry Powder in Brokerage Accounts
As the interest rate is going up I am slowly moving my Bond portion of AA from cash and short-term instruments to bonds.
I have a couple of Roth IRA accounts and an after-tax brokerage account that still has cash as a part of AA. What are the best financial vehicles with low risk that will give me a nice return and will be highly liquid in case I want to convert this into stocks or cash?
Brokerages I use: TD Ameritrade and Merrill Edge.
I have a couple of Roth IRA accounts and an after-tax brokerage account that still has cash as a part of AA. What are the best financial vehicles with low risk that will give me a nice return and will be highly liquid in case I want to convert this into stocks or cash?
Brokerages I use: TD Ameritrade and Merrill Edge.
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Re: Best Vehicles For Dry Powder in Brokerage Accounts
Best vehicle is to not market time and just invest to your investment plan at all times.
Re: Best Vehicles For Dry Powder in Brokerage Accounts
mrsmitt wrote: ↑Sun Mar 19, 2023 5:22 pm As the interest rate is going up I am slowly moving my Bond portion of AA from cash and short-term instruments to bonds.
I have a couple of Roth IRA accounts and an after-tax brokerage account that still has cash as a part of AA. What are the best financial vehicles with low risk that will give me a nice return and will be highly liquid in case I want to convert this into stocks or cash?
Brokerages I use: TD Ameritrade and Merrill Edge.
#1 Don’t time the market like this.
#2 You have high expense brokerages which moving away from would benefit you greatly .
Re: Best Vehicles For Dry Powder in Brokerage Accounts
1 month tbills. You can usually set up auto roll to automatically reinvest them at most brokerages if you want.
Re: Best Vehicles For Dry Powder in Brokerage Accounts
I did invest in my AA. I didn't need BND at the time when interest rates were close to 0%. I will do this market timing again as for me this is common sense.
As a part of my AA for bonds, I would like to allocate some amount for something that will have less risk than BND at this point of time.
As a part of my AA for bonds, I would like to allocate some amount for something that will have less risk than BND at this point of time.
runner3081 wrote: ↑Sun Mar 19, 2023 6:34 pm Best vehicle is to not market time and just invest to your investment plan at all times.
Re: Best Vehicles For Dry Powder in Brokerage Accounts
#1 Why not? I am slowly rotating to BND and want some returns on cash before I move back into BND (only the bond share of my AA).
#2 Can you please elaborate? I didn't pay anything to my brokerages and took advantage of the 75% cashback boost on my BAC credit card as I have Platinum Honors status. TD Ameritrade will transition to Shwab soon but all of them have 0 fees for my three fund portfolio.
#2 Can you please elaborate? I didn't pay anything to my brokerages and took advantage of the 75% cashback boost on my BAC credit card as I have Platinum Honors status. TD Ameritrade will transition to Shwab soon but all of them have 0 fees for my three fund portfolio.
wetgear wrote: ↑Sun Mar 19, 2023 6:48 pmmrsmitt wrote: ↑Sun Mar 19, 2023 5:22 pm As the interest rate is going up I am slowly moving my Bond portion of AA from cash and short-term instruments to bonds.
I have a couple of Roth IRA accounts and an after-tax brokerage account that still has cash as a part of AA. What are the best financial vehicles with low risk that will give me a nice return and will be highly liquid in case I want to convert this into stocks or cash?
Brokerages I use: TD Ameritrade and Merrill Edge.
#1 Don’t time the market like this.
#2 You have high expense brokerages which moving away from would benefit you greatly .
- retired@50
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Re: Best Vehicles For Dry Powder in Brokerage Accounts
You missed the low point for BND by months. It was in mid October of 2022.
Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
Re: Best Vehicles For Dry Powder in Brokerage Accounts
I actually started converting my cash to BND in late 2022. I am not talking about trying to guess the bottom, but when rates hit 0% and inflation is not high, I would rather keep my money in cash or short-maturity bonds than BND, which has a major interest rate increase risk.
retired@50 wrote: ↑Sun Mar 19, 2023 8:03 pmYou missed the low point for BND by months. It was in mid October of 2022.
Regards,
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Re: Best Vehicles For Dry Powder in Brokerage Accounts
Treasury money market funds.
- dogagility
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Re: Best Vehicles For Dry Powder in Brokerage Accounts
Holding "dry powder" is market timing and a poor long-term investment practice.
For highly liquid cash, I'd invest this is in a money market fund.
For highly liquid cash, I'd invest this is in a money market fund.
Make sure you check out my list of certifications. The list is short, and there aren't any. - Eric 0. from SMA
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Re: Best Vehicles For Dry Powder in Brokerage Accounts
Agree with others about market timing.
Sounds like you want something like a money market fund. Don't know which ones would be available at no cost at your brokerages.
Sounds like you want something like a money market fund. Don't know which ones would be available at no cost at your brokerages.
- ruralavalon
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Re: Best Vehicles For Dry Powder in Brokerage Accounts
Holding "dry powder" to buy something at a better time in the future is market timing.
Wiki article "Bogleheads® investment philosophy", Never try to time the market.
I suggest not trying to time either the stock market or the bond market.
For someone who wants something safe and highly liquid as part of their fixed income allocation I suggest a very safe money market fund, like Vanguard Cash Reserves Federal Money Market Fund Admiral Shares (VMRXX), current SEC Yield = 4.55%.
Wiki article "Bogleheads® investment philosophy", Never try to time the market.
I suggest not trying to time either the stock market or the bond market.
For someone who wants something safe and highly liquid as part of their fixed income allocation I suggest a very safe money market fund, like Vanguard Cash Reserves Federal Money Market Fund Admiral Shares (VMRXX), current SEC Yield = 4.55%.
"Everything should be as simple as it is, but not simpler." - Albert Einstein |
Wiki article link: Bogleheads® investment philosophy
- dratkinson
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Re: Best Vehicles For Dry Powder in Brokerage Accounts
Idea. In taxable, you could hold...
--A mmkt fund, as part of your 1st-tier EFs*.
--Some bonds, as part of your extended tier EFs, and retirement bonds if not used otherwise.
* If you set up all of your monthly bills to be paid by your (trusted=they don't mess up your bills) creditors ABP (automatic bill payment) plans, targeted to a cashback CC where your can, and to checking where you must, then your 1st-tier EFs will get a tax-free boost of ~2%/yr---makes ~0% bank accounts less unattractive.
The bonds will fluctuate in price, which will give you the chance to TLH (tax-loss harvest). After you harvest some losses, and have remaining embedded losses (over several years of purchases), then you would have some dry powder that could be redeployed later without owing additional tax. In the mean time, your bonds in taxable allow you to skew your tax-advantaged account more toward stocks for their assumed increased growth potential.
You could consider a muni bond fund. You'll need to compare the muni's TEY (taxable-equivalent yield) to the taxable alternatives (taxable bond SEC yield, CD APY).
National muni TEY = muni SEC yield / (1 - your fed tax bracket).
Single-state muni TEY = muni SEC yield / (1 - your fed tax bracket - your state tax bracket).
Example. Assume you're in 22% fed tax bracket.
--BND SEC yield = 4.32%, see: https://investor.vanguard.com/investmen ... rofile/bnd
--VTEB* TEY = 3.41% / (1-.22) = 4.37%, see: https://investor.vanguard.com/investmen ... ofile/vteb
* The only Vanguard muni ETF that I know of that could be purchased by clients of other brokerages. (As a Vanguard client, I prefer muni funds.)
Lather, rinse, repeat for your tax bracket.
Muni dividends don't add to AGI so don't push you toward next higher tax bracket, as do taxable bond dividends.
While it may be sub-optimal to try to "time the market" by setting aside "dry powder", it is okay to put some of your retirement bonds in taxable, and plan to redeploy them to buy stocks on sale. Since bond NAVs fluctuate little (±5-15%), the tax consequence to sell should also be little. But if you are carrying some embedded losses from bond purchases over many year, then so much the better: dry powder to buy stock on sale, plus a capital loss to avoid/reduce tax to buy stocks on sale.
I thought this idea good enough to write it into my IPS, but it required several years of purchasing over many market cycles/interest-rate fluctuations to have some embedded losses. Until then I've enjoyed the TE (tax-exempt) dividends which have generally returned more after-tax income than TBM (total bond market fund).
--A mmkt fund, as part of your 1st-tier EFs*.
--Some bonds, as part of your extended tier EFs, and retirement bonds if not used otherwise.
* If you set up all of your monthly bills to be paid by your (trusted=they don't mess up your bills) creditors ABP (automatic bill payment) plans, targeted to a cashback CC where your can, and to checking where you must, then your 1st-tier EFs will get a tax-free boost of ~2%/yr---makes ~0% bank accounts less unattractive.
The bonds will fluctuate in price, which will give you the chance to TLH (tax-loss harvest). After you harvest some losses, and have remaining embedded losses (over several years of purchases), then you would have some dry powder that could be redeployed later without owing additional tax. In the mean time, your bonds in taxable allow you to skew your tax-advantaged account more toward stocks for their assumed increased growth potential.
You could consider a muni bond fund. You'll need to compare the muni's TEY (taxable-equivalent yield) to the taxable alternatives (taxable bond SEC yield, CD APY).
National muni TEY = muni SEC yield / (1 - your fed tax bracket).
Single-state muni TEY = muni SEC yield / (1 - your fed tax bracket - your state tax bracket).
Example. Assume you're in 22% fed tax bracket.
--BND SEC yield = 4.32%, see: https://investor.vanguard.com/investmen ... rofile/bnd
--VTEB* TEY = 3.41% / (1-.22) = 4.37%, see: https://investor.vanguard.com/investmen ... ofile/vteb
* The only Vanguard muni ETF that I know of that could be purchased by clients of other brokerages. (As a Vanguard client, I prefer muni funds.)
Lather, rinse, repeat for your tax bracket.
Muni dividends don't add to AGI so don't push you toward next higher tax bracket, as do taxable bond dividends.
While it may be sub-optimal to try to "time the market" by setting aside "dry powder", it is okay to put some of your retirement bonds in taxable, and plan to redeploy them to buy stocks on sale. Since bond NAVs fluctuate little (±5-15%), the tax consequence to sell should also be little. But if you are carrying some embedded losses from bond purchases over many year, then so much the better: dry powder to buy stock on sale, plus a capital loss to avoid/reduce tax to buy stocks on sale.
I thought this idea good enough to write it into my IPS, but it required several years of purchasing over many market cycles/interest-rate fluctuations to have some embedded losses. Until then I've enjoyed the TE (tax-exempt) dividends which have generally returned more after-tax income than TBM (total bond market fund).
d.r.a., not dr.a. | I'm a novice investor; you are forewarned.
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Re: Best Vehicles For Dry Powder in Brokerage Accounts
I have never kept dry powder. I have a plan, and I stick to it. To effectively use dry powder, you have to be smarter than everyone else. Are you? I know I am not.
- climber2020
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Re: Best Vehicles For Dry Powder in Brokerage Accounts
How did this strategy work out between 2009 and 2016? That time period fits exactly the conditions you're describing.
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