What to do with cash?

Stocks A to Z
1

As of this Friday it appears that my BRKB $320 calls will be exercised and I will then be flush with cash.

Mostly in an IRA, but I have cash in taxable and tax deferred accounts.

Any ideas on what fixed income opportunities appear attractive?

I am considering online money market savings like AMEX, which pays 50 basis points.

At this time I am prepared to keep these funds out of equities for a year or more. My ira is at Schwab, and it seems challenging to move funds to an online savings if it is only for a temporary period of time.

Thanks for your ideas.

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2

Dillard’s trust preferred ticker DDT is currently paying 7.2%.

Callable anytime at $25, currently at $26.13.

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3

Thanks

4

in random order, Sit tight, make some oil/ energy bets, make some fallen fast-growers bet.

I am also raising cash, waiting for the pull back or the carnage on the growth name to be over, then I can make some small bets on handful of companies and sit tight.

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I use Marcus. 1/2%

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Buying a callable preferred with premium is a very risky bet that they will not call. I would not touch it.

instead, buy $10K, worth of i-bonds (you can do additional 10k for your spouse). Buy other callable preferreds that are close to $25 (or par value).

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7

I am considering online money market savings like AMEX, which pays 50 basis points.

Lotsa 'round:

Ally: .50%
CIBC (Canadian Imperial Bank of Commerce, US office): .52%

https://www.bankrate.com/banking/money-market/rates/

Lending Tree (prior Radius Bank) .60% looks to be best current offer for min deposit $2,500.

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Since you don’t need the money for a year, I-Bonds seem like an obvious choice. Can only do $10k per SSN, unfortunately.

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9

QuantumOnLine shows that DDT has been callable since 2003 and matures in 2038.

Dillards is a department store chain mostly in malls headquartered in Little Rock. Their stores are regional mostly in the South. We do have them in St. Louis. Similar to Macy’s.

The shift to on line retailing has stressed the mall stores including Dillards. At this point Dillards looks like a survivor.

Most of the trust preferred stocks from 20 years ago have been called as issuers were able to borrow cheaper and refinance their high yield debt. DDT survives probably because Dillard’s can’t borrow at better terms due to department store uncertainty.

Bond rating is given as B-. (You get the better yield for taking the extra risk.)

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10

FWIW. I maxed out my i bonds already.

DDT looks interesting. I did a screening on Schwab and found 34 similarly rated preferred to look at.

Will check out lending tree option as well.

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Do your own research, but here’s a few to consider, with approximate annualized returns:


FLDR - Fidelity Low Duration Bond                   0.50%
PFF - Ishares Preferred ETF                         4%, maybe, but price can fluctuate.
Sprint/Nextel <T-Mobile> Bond (matures 11/15/22)    *1.2%
Brinker Bond (matures 5/15/23)                      *1.8%
  • assumes held to maturity, no default and no call, at what I believe are approximate current market prices.
12

The $320 calls Jan 2022 are now worth about $6.

You could roll the calls forward to Jan 2023 $360 calls,
which are currently about $12.

So you would collect another $6 call premium, and if
the shares get called next year, at least they will be
called at $360 instead of $320, which is another 12% gain.

It beats putting the cash in a savings account at 0.5%.

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13

QuantumOnLine shows that DDT has been callable since 2003 and matures in 2038.

Understood. You are assuming they will not call it. The way I see it is, today even a b- issuers would be able to refinance it, reissue it at a lower coupon. It is not clear why they haven’t done it.

If my cost basis is historical, I will continue to hold it, otherwise I will not touch it now.

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Preferred or bond will still worth less when there’s a market crash and may not be liquid.
I use AMeX for storing my cash…

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That is a decent idea as well.

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Thanks for all of the good ideas.

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Just to be clear, unless you are talking about March 2020 or Great financial crisis, preferred in regular bear market don’t go illiquid.

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I have done quite well in REIT preferred stocks, guided by a very good Motley Fool Board. I am completely out of them at the moment.

I describe them as a “heads you lose, tails they win” situation in that if rates go up, they never get called and you are stuck with a relatively low yield sub-par issue. If rates drop, they get called and you end up with cash with no way to replace them at a comparable rate. You need to be happy with the rate when you buy, and be willing to hold if the market dictates.

They are very thinly traded, so you need to buy and sell on limit orders. A market order on low volume PFDs can be a disaster. The low volume creates a rare situation for the small investor. Many issues are just too small for funds and institutions to mess with, so in when a market gets scared, prices can plunge if there is much liquidation going on. If you know what companies are securely funded there are bargains.

At these low rates and over optimistic market it just isn’t an investment I want to mess with currently. Next crisis, big or small I’ll probably get back.

I’ve maxed out IBonds for me and my wife. I recently bought some high yield stocks in our IRAs but they went up so much so fast I sold. I have a decent pile of cash that I’m sitting on, waiting for Devine guidance.

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19

I posted this before but buy real estate that you can short term rent (air bnb) in a south east state. There are quite a few locations, Orlando area, any major beach area in FL, Myrtle Beach, Savannah, etc. I would use leverage to help with inflation should it show up, you can still get a 3.5% investment 30yr loan for 240k, you can buy a 4 bedroom house 300k to 400k. Furnished homes are common, but you will probably have to refurnish the things you care about. Hire a property manager, 6 to 8% return is not difficult even before you take real estate appreciation into account. Also you are somewhat diversified, can now go somewhere on vacation stay for free and write it off, and learning a new life skill.

You can also long term rent them, which is easier, but comes with a different set of problems. Would not do if you expect real estate to come back down, as many of these places have appreciated 10 to 20% in the last year. I would also avoid any area other than the South East, just because the politics may be challenging.

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20

I describe them as a “heads you lose, tails they win” situation

I was big at one time and now except one I have no REIT preferred. Most of my preferred holdings got called away. Time to time I buy some special situations, like the DBRG preferred I recently bought, I bought for $25.28 on Dec 30th, they had gone ex on Jan 18th for .445 dividend and it will stay above par because they are committed to redeem these preferred. The REIT is planning to bring down their cost of capital and these 7.125 coupon is high cost for them. So I parked some cash there.

I use limit order and the brokerages anyways split your order. In any case, I expect this to be called before I will have a need for that cash.

Just sit tight… there are opportunities opening up.

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