cancel
Showing results for 
Search instead for 
Did you mean: 
     
Highlighted
chang
Valued Contributor

Sick of cash and cash subs... need a little bit more FI risk

Due to lack of ideas over the last 6-12 months, I've let cash build up. At one point, my MM funds were overflowing, so I took a baby step and moved the money into JPST and VUSFX.

Now I want to take another step up on the risk/reward ladder. With an imminent retirement and 180-degree change from living off (and investing) salary to living off investments, I want more income.

I'm thinking of starting off by getting rid of the JPST and spreading it around into existing bond funds (sitting in taxable accounts):

Taxable

  • DODIX : vanilla I/T, IG
  • VBILX : vanilla I/T-L/T, IG (yielding an amazingly low 2.16% for its 6.63 yr duration)
  • IISIX : S/T, MS-NT, junky but conservative
  • VWEAX : HY (on the conservative side) (yielding 4.18% with 3 yr duration)
  • PUTIX : S/T, NT funky PIMCO fund (yield 2.34% with 0.7 yr duration)
  • PIGIX : I/T, IG/Corporates
  • SEMMX : S/T, NT MBS fund (yielding 3.9% with 1.4 yr duration)
  • VUSFX : US/T, basically a cash sub
  • VWIUX : vanilla I/T, IG munis (yielding an amazingly high 2.12% for its 0.83 yr duration)

Municipals

  • VWALX : L/T, HY munis (yielding 2.28% tax free, approx 3.5% tax equivalent, with 6 yr duration)
  • PHMIX : L/T, HY munis (more aggressive than VWALX)

How would you suggest adding a new $1 to these funds, in order to meet my goal of getting a little more income and taking a little more risk than JPST?

I am thinking 

  • 1/3 - IISIX
  • 1/3 - SEMMX
  • 1/3 - VWALX

Any other ideas?

Tags (1)
0 Kudos
92 Replies
ECEPROF
Participant ○

Re: Sick of cash and cash subs... need a little bit more FI risk

One word: CEFs.

There are a lot of people in the CEF forum who live on the monthly distributions of CEFs - like annuity payments. Fully taxable.

I have 36% invested in two CEFs and will earn about 9% annually. 2020 will be my first full year of new startegy. However, based on my 2019 experience, I should be ok with this. I don't need the income but will be reinvested. But you have to choose a good set of CEFs. I added a few shares yesterday and today also. There is also another category of income funds called "BDCs." They are volatile. So, you have to trade in/out often. I tried both in both categories and traded often to learn about these. After July, 2019, I stopped trading in/out and bought only two CEFs in large number of shares. I stopped selling them. Good luck.

 

 

0 Kudos
chang
Valued Contributor

Re: Sick of cash and cash subs... need a little bit more FI risk


@ECEPROF wrote:

One word: CEFs.

There are a lot of people in the CEF forum who live on the monthly distributions of CEFs - like annuity payments. Fully taxable.

I have 36% invested in two CEFs and will earn about 9% annually. 2020 will be my first full year of new startegy. However, based on my 2019 experience, I should be ok with this. I don't need the income but will be reinvested. But you have to choose a good set of CEFs. I added a few shares yesterday and today also. There is also another category of income funds called "BDCs." They are volatile. So, you have to trade in/out often. I tried both in both categories and traded often to learn about these. After July, 2019, I stopped trading in/out and bought only two CEFs in large number of shares. I stopped selling them. Good luck.


Thanks ECE. (Actually, that's three words.) It's a very good point. I will mention, however: I used to be an active CEF investor. Started with muni CEFs, of which I owned up to 7 at one point, and also at times some PCI, ACG, FAX and maybe a few others.

I let them all go, slowly, and now have none. First, I will only buy at deep discounts. The premiums (or lack of discounts) I see today are shocking.

Second, I don't like how sensitive CEF investors are to distribution cuts. The problem with managed distributions is that if they cut so much as a penny, investors throw fits of hysteria and the price plunges. I guess that's OK if you're a 100% income investor and (claim that) you could care less about NAV.

Third, it takes a fair amount of work to analyze and pick CEFs. I used to do that, reading monthly UNII lists and so on. I really don't enjoy that. It bores me.

Fourth, CEFs are essentially for trading (although I held mine for very long periods). I am not a trader.

So, honestly, I am not looking into CEFs now.

0 Kudos
FD1001
Valued Contributor

Re: Sick of cash and cash subs... need a little bit more FI risk

Pretty "simple"...all the answers are at my thread 2020 - bond funds analysis

hint: chances for VG funds are slim.

 

0 Kudos
franks
Follower ○○

Re: Sick of cash and cash subs... need a little bit more FI risk

I have been quite happy with WATFX and AGGY.

0 Kudos
richardsok
Participant ○

Re: Sick of cash and cash subs... need a little bit more FI risk

OK, so you won't trade, and won't buy any CEF that is not at discount.  Further, you're bored following  the market; you have other interests, yet you just want steady income -- but everything appears expensive to you. Preferreds are at interest rate risk -- even though there's no rate hikes in sight.   Ditto bond funds.  I might suggest you look at one area that is undeniably cheap -- largely because it is so universally hated by young investors and publicly virtuous investment institutions  .  In today's social environment, "oil is the new tobacco", the industry decried by all correct-thinking wokesters.    Since you don't want to research, I say go big, go safe, go diverse.  Hold your nose and buy XLE, throwing off 6.5% regularly, and with a global energy glut well reported, priced now right near its five-year support level.

Too safe for you?  Then put a piece of your money into Pimco's NRGX, a new fund where they trade energy commodities, E&P companies and US Treasuries.  Like their other CEFs, what Pimco does is above my pay grade to understand -- but judging from the special YE distribution they just made, it confirms to me Pimco is often rather skilled at what they do.  Chart is just now rallying from its recent lows. 

9.3% yield.     Spend it wisely.

 

 

chang
Valued Contributor

Re: Sick of cash and cash subs... need a little bit more FI risk

Richard- that’s some interesting food for thought. I have owned some energy stocks/ETFs before. Last experience: I owned PXI for about 2 years, selling a couple years ago. It was a wild ride. I lost a lot of money, with some up and down days as much as 8-9%, then finally it surged, and I sold it in the middle of 2018 for a small profit - barely enough to pay for all the Alka Seltzer I needed while I owned it. Then it fell again ...  very lucky timing on my part.

I owned XOM from 2008-2019 finally selling it last year. Maybe a mistake, I don’t know. Yield so-so, price refused to go anywhere, just finally got too aggravating to hold for someone who doesn’t normally own individual stocks.

So I can’t say that my experience with the sector is all that great.

Let me think about this some more.

I do own EPD and MMP. Actually bought a little more EPD about a month or two ago when it dropped hard, and it bounced back nicely.

I have, from time to time, thought about buying a slug of CVX. At least it yields 4+%, and hopefully doesn’t have a great deal of downside potential.

0 Kudos
Win1177
Participant ○○○

Re: Sick of cash and cash subs... need a little bit more FI risk

Chang,

If you decide to go with “big oil” for at least “some” of your income, consider XOM. I know, it’s been basically flat for years. But with a 5% dividend, as well as selling below $70/ share, I think it’s pretty safe as far as downside risk (compared to other stocks). I hold a pretty large slug of XOM, view it as a “bond proxy” since we have big unrealized capital gains. 

Win
0 Kudos
FD1001
Valued Contributor

Re: Sick of cash and cash subs... need a little bit more FI risk

You can't beat the risk/reward + high income mostly securitized funds, add to that low rates already and I would select from the following:  

Lower volatility SEMMX,IISIX

higher volatility: VCFIX,PIMIX,IOFIX. 

The minute you buy a VG fund you get a much lower income and/or volatility.

 

0 Kudos
ElLobo
Participant ○○○

Re: Sick of cash and cash subs... need a little bit more FI risk

"How would you suggest adding a new $1 to these funds, in order to meet my goal of getting a little more income and taking a little more risk than JPST?"

I'm not sure what you are asking about.  JPST is the equivalent of a 'risky cash' fund, yielding 2.7% with almost no risk (SD = 0.4%), it's NAV increasing 50 cents over its 2.5 years of existence, with monthly 10 cent drops whenever the distribution is paid.

With today's low interest rate environment, I would suggest you take a step in the 'cash carry' world of investing, where you borrow at a low interest rate and invest in a high interest paying asset.  PCI is such an asset, employing approximately 2X leverage.  PCI yields 8.24% today, compared to 2.7% for JPST.  Ifn you don't care about NAV, the major driver, obviously, for SD risk, you can pick up 3X the income at 1.6X the risk adjusted return (1.6 is the ratio of the JPST Sharpe Ratio to that for PCI.)

Likewise, instead of a bond asset, I suggest the bond equivalent 2X leveraged preferred stock ETN, PFFL.  Its current yield is 11.2% (4X that of JPST) at 4.9X the risk adjusted return.  PFFL is an ETN, not an ETF, with different risks.

Buy and hold either PCI or PFFL, harvesting the distribution yield thrown off.  Both pay monthly.

Finally, at a yield of 5.1%, but a SD risk of 24%, you can get almost 2X the yield of JPST from an EQUITY 2X leveraged ETN, SDYL, which tracks the 20 year divey aristrocrats found within the S&P1500 (total stock market index).

0 Kudos
FD1001
Valued Contributor

Re: Sick of cash and cash subs... need a little bit more FI risk


@ElLobo wrote:

"How would you suggest adding a new $1 to these funds, in order to meet my goal of getting a little more income and taking a little more risk than JPST?"

I'm not sure what you are asking about.  JPST is the equivalent of a 'risky cash' fund, yielding 2.7% with almost no risk (SD = 0.4%), it's NAV increasing 50 cents over its 2.5 years of existence, with monthly 10 cent drops whenever the distribution is paid.

With today's low interest rate environment, I would suggest you take a step in the 'cash carry' world of investing, where you borrow at a low interest rate and invest in a high interest paying asset.  PCI is such an asset, employing approximately 2X leverage.  PCI yields 8.24% today, compared to 2.7% for JPST.  Ifn you don't care about NAV, the major driver, obviously, for SD risk, you can pick up 3X the income at 1.6X the risk adjusted return (1.6 is the ratio of the JPST Sharpe Ratio to that for PCI.)

Likewise, instead of a bond asset, I suggest the bond equivalent 2X leveraged preferred stock ETN, PFFL.  Its current yield is 11.2% (4X that of JPST) at 4.9X the risk adjusted return.  PFFL is an ETN, not an ETF, with different risks.

Buy and hold either PCI or PFFL, harvesting the distribution yield thrown off.  Both pay monthly.


To make easy on you, find funds with SD < 2 

0 Kudos
ElLobo
Participant ○○○

Re: Sick of cash and cash subs... need a little bit more FI risk

"To make easy on you, find funds with SD < 2"

He's looking for NEW ideas, not same old same old!

In fact, FD, the 'general' answer to Chang's OP is to look at the ratio of the distribution yield of any proposed fund, as well as its Sharpe Ratio, to that of JPST.  For example, PCI has 3X the income at 1.6X the risk adjusted return.  That would be a bargain, in terms of MPT, for a retiree.

0 Kudos
FD1001
Valued Contributor

Re: Sick of cash and cash subs... need a little bit more FI risk


@ElLobo wrote:

"To make easy on you, find funds with SD < 2"

He's looking for NEW ideas, not same old same old!


Unfortunately, Chang is a smart guy and knows about your ideas but if you read the OP and look at the funds he listed, none of them is anything close to your ideas.

Another clue was "Now I want to take another step up on the risk/reward ladder."...and not a huge leap.

 

0 Kudos
ElLobo
Participant ○○○

Re: Sick of cash and cash subs... need a little bit more FI risk

"Another clue was "Now I want to take another step up on the risk/reward ladder."...and not a huge leap."

Get a clue, FD.  3X the distribution yield at 1.6X the risk reward, for PCI compared to JPST is an IMPROVEMENT!  Go back and learn something about MPT and risk reward!

0 Kudos
hku
Explorer ○○

Re: Sick of cash and cash subs... need a little bit more FI risk

Cash is not always trash, 2020 could easily be another 2015:

In 2015:

Cash is on track this year to outperform both stocks and bonds, something that hasn’t happened since 1990, according to Bank of America Merrill Lynch. And it might all be down to the notion that central bank-fueled liquidity has peaked.

Year-to-date annualized returns are negative 6% for global stocks and negative 2.9% for global government bonds, according to analysts led by Michael Hartnett in a Friday note. The dollar is up 6% and commodities are down 17%, while cash is flat.

0 Kudos
FD1001
Valued Contributor

Re: Sick of cash and cash subs... need a little bit more FI risk

Ellobo,

How many times do we have to go thru this?

PCI is a great fund and can be used instead of some of your stocks and/or other riskier investments BUT not as a cash sub or one level above cash sub.

and the "new" idea of PCI has been discussed maybe 300 times already in the last 5 years.

0 Kudos
ElLobo
Participant ○○○

Re: Sick of cash and cash subs... need a little bit more FI risk


@FD1001 wrote:

Ellobo,

How many times do we have to go thru this?

Never, FD!

PCI is a great fund and can be used instead of some of your stocks and/or other riskier investments BUT not as a cash sub or one level above cash sub.

and the "new" idea of PCI has been discussed maybe 300 times already in the last 5 years.


Chang asked for 'bond' ideas, instead of cash.  Nothing mentioned by him, or you, or anyone else, in this thread, included 'cash carry'.  The only way to increase yield for an ultra short bond fund is to go out in term, or down in quality.  Pretty standard stuff, and I am quite certain Chang knows this.

You don't have to lecture me, or anyone else, on bonds.  Or stocks or funds either, for that matter! 8-))

(And I assume you know what 'cash carry' means!  Maybehaps that's your problem, FD!)

Here is the title of this thread:

Sick of cash and cash subs... need a little bit more FI risk

ElLobo
Participant ○○○

Re: Sick of cash and cash subs... need a little bit more FI risk

FD,

Had you chosen to think about things, instead of spouting you standard verbiage, you might have answered me that 'cash carry' assumes you borrow cash at a lower interest rate than you receive from the investment that you are making.

In the instant case, of JPST, another form of 'cash carry' would be to hold it in a regular taxable account and use margin.  In which case, borrowing cash, at an interest rate of, say, 4%, wouldn't make sense ifn the asset, JPST, was only yielding 2.7%.  In fact, my brokerage doesn't allow me to buy JPST on margin.

In general, to use margin, as 'cash carry', Chang would find the margin interest rate for his taxable account.  It would then be 'profitable' to use margin with ANY fund, of his choice, that distributed MORE than that rate.

Leverage, on the other hand, is 'internalized' margin, where you don't have to worry about margin calls, and can also use it in a retirement account, like a TIRA or ROTH, neither of which allow you to use margin.  That is, PCI and PFFL can both be used in a tax advantaged account.

If Chang really wants to boost income for retirement, hold PCI in a taxable account and use margin, again doubling the income.  On the other hand, the SEC doesn't allow margin to be used on PFFL.

 

3M
Explorer ○○

Re: Sick of cash and cash subs... need a little bit more FI risk

With all the interest rate cuts in 2019, bonds don't have much more room to go.

Best bet for income in 2020 is equity;  S&P5000

0 Kudos
Howaya
Explorer ○○

Re: Sick of cash and cash subs... need a little bit more FI risk

Chang, one of your quandaries is that in 2019 so many of the FI choices - especially those found in FD's lists - have had stunning returns that are not likely to repeat any time soon.  Some of these may revert to the mean.  Another given is that you have said several times you hate paying a high ER.  But since better yield is your goal without making a critical error, spreading the cash around for different risks/rewards is key.

First, I agree with Richard wholeheartedly.  XLE gets you a far better yield (actually 3.74% at the moment) while it is still near its 1, 3 and 5 year lows.  Diversification in one easy step up with potential for appreciation.  Even though the yield is much lower than NRGX, the ER is too.  If you want more yield from this sector and can hold your nose while buying a single stock, OXY is also coming off its 1,3 and 5 year lows at nearly 7% yield.  Maybe an 80/20 mix to get you over 4%.

Second, you have a large portfolio so munis play an important role.  You recently indicated respect for VWALX with its low ER.  FD clearly doesn't like it but its performance over time is steady and the effective yield makes for a very nice step up from cash.  Why not simply find another one to pair with?  FD's 2020 outlook has a few to choose from.

Third, you may feel okay with still holding some cash equivalents in reserve.

I'm in a similar situation with too much in cash equivalents, albeit with a smaller portfolio.  Good luck and let us know what you decide to do.

0 Kudos
Announcements

To learn more about the recent changes to Morningstar.com, please see the updated FAQ.

See recent posts and all our forums or access the old forums here.
 

You can read the community guidelines in