In setting up for the next traunch of Roth conversion I converted some stock to cash to round out my living expense into my 73rd year. If SECURE passes 73 will be my RMD year. I store my cash in a high yield savings accounts paying 2.45%, so my interest is entirely predictable and government secured. My money market account only pays 1.75% so to me this seems a better deal. Cash at 2.45% is pretty safe. It grows and its growth beats inflation and I don’t have to put up with the variations in valuation of a bond fund like VBMFX. It’s basically as stable as a 3 month T-Bill but pays a lot more interest
Here is a 3 year chart of VBMFX and it has grown 2.13% where as my savings account is paying 2.45%. I also own bonds but I think this provides some diversity
I dont know how to model a savings account on the efficient frontier so I modeled VTI vs BIL which is the 3 month T bill etf and VTI and VBMFX fidelity total bond
You can see the VBMFX has an expected return of 3.83 with a SD of 3.32 vs the T Bill which has an expected return of 0.43 and a SD of 0.31. With a return of 2.45 I would expect the blue line to move up and more closely resemble the red line. My yield would be 2.45% but my SD probably less than .31% since the investment is fixed and government secured like a T bill.
Given bonds keep falling, meaning more volatility. I’ve concluded this is a pretty good investment. Essentially zero risk with a return only 36% less than the bond fund and it is perfectly liquid. It fits my need. I think cash is often ignored as an asset class because it’s paid so little compared to inflation but now that it pays more than inflation it seems both safe and efficient for risk free money, and I think provides some diversity which lowers overall risk in the portfolio. In the olden days before everybody moved out on the risk curve is was quite common for retiree’s to hold laddered CD’s as an income vehicle.