Conference nyoss1::market_investing

Re: 154.0

I have the same problem, Gary.  Actually, I was hoping for a little more
short term leverage than a money market fund.  Probably the Spartan money
market fund, advertised by Fidelity, would be a great one.  But how about
a systematic withdrawal plan from a good equity-income fund?  Of course, 
you wouldn't be able to write checks, but the systematic withdrawals could
be put into a NOW account and used to pay bills with from that.  In the 
meantime, the rest of the money in the mutual fund could be generating growth 
and income.  I'm considering Lindner Dividend fund, but there are other good 
ones.   I'd be very interested in hearing comments and suggestions on this.

Thanks,
Mardy

    My wife got her TSFO check and we deposited it in the Benham Capital
    Preservation Fund (1-800-4SAFETY).  Give them a call and ask for their
    prospecti on money funds.  Our money went into the most
    ultra-conservative, U.S. T-Bills only fund, but they have others that
    yield more, with more risk.  Free checking, interest posted monthly.
    
    This week's _Barron's_ discusses the interesting point that many U.S.
    money market funds have cash invested in Japanese Bank Bonds, which are
    still safe but less safe than one month ago, one year ago, etc.  Fido's
    Spartan is said to be one such fund.
    
    This should come as no surprise:  your balance will disappear awfully
    fast, no matter how carefully you budget.
    
      John
    
    p.s. I think highly of Lindner, fwiw

Several T. Rowe Price Bond Mutual Funds (Short Term Bond Fund, International
Bond Fund, to name two) provide free, but limited checking.  I think there might
be amount minimums per check and monthly quantity-of-check maximums.  All
T. Rowe Price funds are no-load.

	Nick

	If you are considering Fidelity Spartan, do also consider Dreyfus
	Worldwide Dollar MMF for your short term needs. They have a lower 
	initial requirement (2500 vs. 20000 for Spartan), their returns for
	the last 2 years have consistently beaten Spartan, and they have a 
	reasonably good checking priviledge (free, unlimited, but min. of 500
	$ per check). WW$ is also among the top 5-10 MMF for the last year,
	and was no. 1 for the whole year before that (when the management was
	absorbing all operating costs).

	I don't think that other Dreyfus mutual funds have performed that well
	(except their Third Century), but WW$ and many of their US Treasury
	Funds (they have 3- one short, one intermediate, and one long term) 
	have performed quite well.

	I have been a happy customer (and nothing else!) of the WW$ fund. Their
	number of 800 645 6561, and they have a 24-hr customer service. We often
	call them after midnight for our telephone transfers.

	On the downside for Dreyfus, I think they spend too much money on 
	full-page ads in the WSJ etc. 

	FWIW.

    Is there any safe vehicle (or any at all, for that matter) that post
    interest daily? More frequently than monthly? Is there a pointer to
    tables that might compare daily vs weekly vs monthly posting in terms
    of earnings differences?
    
    Thanks...Gary

    Interest can be compounded "continuosly" or it can never be compounded,
    ie simple interest... or hourly, or daily, or weekly, or biweekly, etc.
    
    "Posting" refers I assume to the recognition to the accrual of interest
    in a ledger (or a statement that's mailed to you)
    
    Why should this matter to you or anyone?

RE: .6

I would think that if the interest was "posted", added to your balance, then you
would be earning interest on the new balance from then on. (original $$ plus
interest $$ till next post)

    Posting to me means what .7 referred to - I don't much care when I find 
    out about it so long as they do it.  So the question stands - are there
    vehicles that either "compound continuously" or whatever, with the aim
    being the best use of the deposits for earnings. If there are, I would
    assume that the rate might be lower than some to make up for the added
    benefits, but...
    
    Examples anyone???
    
    Thanks...Gary

    
    You're better off that the bank doesn't compound instantaneously; at
    the same rate of interest, the simple interest formula returns more
    at any time prior to the completion of the year.  (though as -.1
    said, they'd probably just change the interest rate to reflect that).
    
    In other words, the simple interest formula returns � the yearly
    rate after 6 months, whereas the instantaneously compounded formula
    would return less than this amount (at the same yearly rate).
    
       /Jim
    

    Re .9
    
    I don't understand that. Wouldn't a rate of x% compunded
    continuously/daily/monthly/quarterly give a better yield than x% simple
    interest?
    
    Dick

    
    think of it geometrically...
    
    	an exponential curve with an exponent > 1.0 (positive interest
    rate) is concave up; a straight line connecting the beginning balance
    to the ending balance is therefore always above the exponential curve
    except at the beginning and ending of the period.
    
        /Jim
    

    The objectives are to:
    
    1. Gain as much interest as possible on the principal, while
    2. Having guaranteed (as much as is possible) principal protection, and
    3. Having reasonable flexibility/simplicity in writing checks (without
       needing to plan carefully about having to wait a day or two or...in
       order to allow the interest for the last N periods to be credited,
       rather than lose it all by writing a check a day too soon).
    
    So, the basic question is back to: what are the vehicles available to
    do this?
    
    Is this really as complicated as we appear to be trying to make it out
    to be? Isn't there a (comparatively) simple answer? Where can one look?
    
    Thanks...Gary

>    Is this really as complicated as we appear to be trying to make it out
>    to be? Isn't there a (comparatively) simple answer? Where can one look?
    
    If anything, it is more complicated than you make it out to be.
    
    The trouble is that nobody besides yourself has any idea what you mean
    by "as much as possible" when used in self-contradictory ways, viz:
    "as much as possible" interest with "as much as possible" safety.
    How am I to determine which much is more much?
    
    Yield-enhancing techniques are many and wondrous.  After all, -everybody-
    wants the same thing you do, so there are many variations around to try
    to entice you to invest with THIS group instead of THAT group.
    
      John

    Let me simplify...in order of importance:
    
    1. Absolute security (I will accept the assumption that the US will not
       fail, and that US Government instruments are acceptable. Or, bank
       accounts with federally guaranteed insurance).
    
    2. Maximized interest assuming (1).
    
    3. Some (no matter how difficult or complex) check writing capability.
    
    I would have assumed (never...) that there would be some easy-ish
    answers. For example
    
    "Money market funds in general fit (1), vary in (2), and allow (3)."
    In this case, the problem is to ferret out the best answer to (2).
    
    "A savings account within FDIC limits is the only way."
    In this case, I woulld probably not have believed you 8')
    
    "Snorglefratz accounts, Types 34623.324.X.2-a and h are where you
    should be, you idiot - everybody knows that!"
    No comment.
    
    Again, being reasonable people, I assumed (there I go again...) that we
    all understood that there are no free lunches; that rates and returns
    vary; and that the parameters generally work in opposition. But a start
    was what I was (am) after. I think I understand that 5 year CDs ain't
    it. Likewise US Savings Bonds. But Money Market funds? 
    
    The issue is around security, return, and fluidity - no absolutes, just
    hints and pointers (as I think I said, I meant to) - in the original
    topic.
    
    Finally, with my VERY limited knowledge of this subject in general, I
    would have guessed at something like "no load Mutual Funds investing
    solely in US Government instruments", and with the knowledge that the
    rates would be relatively stable and pretty low. I am not looking for a
    killing - just something better than my checking account (if there is
    something) for the salary lump sum aimed at keeping me in food for six
    months.
    
    Howzat???
    
    Cheers...Gary
           

    re: .9,
    
    For a given interest rate, the more frequent the compounding the 
    higher the effective rate.
    
    Example:    12% interest simple interest one year = 12%.
    		12% interest compounded semiannually =
    			1.06 * 1.06 = 12.36%.
    
    Gim
    
    

    
>    think of it geometrically...
    
>    	an exponential curve with an exponent > 1.0 (positive interest
>    rate) is concave up; 

Ayup.

>   a straight line connecting the beginning balance
>    to the ending balance is therefore always above the exponential curve
    except at the beginning and ending of the period.
    
Sorry, nope.  The simple interest line is tangent to the curve at t=0. 
Therefore the exp curve is always greater than the simple, linear curve.

For continuous:
Let x=principal,  r = simple annual rate

   dx/dt = rx    ==>   x(t) = Xexp(rt) ;  X = value at t=0

   Xexp(rt) = X(1 + rt +r�t�/2 + ...)

For simple:    

   dx/dt = rX     ==>   x(t) = X(1 + rt)

which show exp always greater.

Moffatt

    re .14
    
    Now we have a prioritized list, and the weights are clearer
    ("absolute" means "absolute", right?).  I can answer you:
    
    Put the bulk of your money into a set of short-term US Treasury
    (bills? bonds?  the six-month thingies), on staggered cycles,
    so that one-sixth becomes available every month.  If you've
    got _lots_ of cash, you might put some on a yearly cycle for 
    more interest, but that reduces liquidity.
    
    Get a money-market fund which invests only in US goverment
    paper for check-writing.  Put about two month's worth of
    checks in it, and use it as a buffer account.
    
    This set-up gives you the security you desire (note that the
    money-market fund alone would not be as secure--if something
    goes wrong, you're owed money by the firm, not by the US),
    and some prospect of higher interest due to the longer terms
    of the rotating bonds.  It also allows check-writing.
    
    It's not as easy to use as just the money-market fund would
    be, though.
    
    		-John Bishop

    Thanks John.
    
    How about the next step (the real case, I suspect, for many besides
    myself)? For SERP, the amount in question IS six month's worth of
    living money. That means that using six month instruments is probably
    not practical, as we will be using roughly 1/6th of it monthly.
    
    I guess the point might be that to get SOME reasonable return, and to
    have checking, one must sacrifice some security. As always, that would
    boil down to assessing and accepting the risks. Putting one half or one
    third each in the appropriate number of money-market funds would likely
    be an acceptable compromise, if I understand the issues correctly.
    
    Cheers...Gary

    Given the good record of money-market funds, even if I were paranoid
    I'd stick with two.  Non-paranoids would just pick one.  The odds of
    a "Treasurys only" fund going under in the next six months are _low_.
    
    		-John Bishop

    
    >> Sorry, nope.  The simple interest line is tangent to the curve at
    >> t=0.  Therefore the exp curve is always greater than the simple,
    >> linear curve.
    
    I don't think that the slopes are initially equal.
    
    I believe that what they do to calculate simple interest is as
    follows:
    
    	o  If the interest rate is, say, 10%, then you get 1.1 times
    	   your principal at the end of the year.  Times earlier than
    	   on year would return a linearly pro-rated amount.
    
    I believe that the exponential formula is calculated as follows:
    
    	o  The value at time t is  P(t) = P(0) * f(t), with
    		f(0) = 1.0, and
    		f(365) = 1.1
    
    	   or more put another way  P(t) = P(0) * exp (k * t), where
    	   in this case k would equal .0002611.
    
    	   Using this equation, P(365/2) = 1.0488, whereas the simple
    	   interest formula would yield 1.050.
    
    In other words, they solve for the exponential factor such that the
    year-end return is the same... the initial slopes are not equal.
    
       /Jim
    

    (This is a response to note .20, which was very long due to
    inclusion of a computer-generated table and will thus be
    removed soon)
    
    The point of cyclical purchases of Treasury bonds was not to make 
    lots of money, but to stay even with inflation and be safe.  When
    you add taxation in, you'll probably lose purchasing power with
    this strategy--but your capital will be protected from anything 
    short of utter disaster for the U.S. (in which case you presumably
    have more pressing worries than where your cash is).
    
    I recommended purchasing several small bonds rather than one big one
    because the asker of the initial question was going to spend the
    money as time passed;  I recommended short-term bonds because the
    initial request was for liquidity--with a six-month cycle, no dollar
    is more than six months away, and half will show up in three months.
    I was thinking in terms of someone with several years' income who
    was going to use it to live on for several years.
    
    I had not understood that the request was only for a place to put six
    months' income for six months--when I did, I suggested a "Treasurys
    only" money-market fund, which will have an even lower return and
    be less safe, but will be a lot easier to use (and the forgone income
    is not great--it's on the order of 0.25 percent pre-tax).
    
    All this was for an extremely risk-adverse person.  A less risk-adverse
    person with six months' income should consider a regular money-market
    fund or even a bond fund, for a higher yield at greater risk; the truly
    agressive might include some equity, but I wouldn't recommend equity
    for someone who was thinking only six months into the future.
    
    		-John Bishop

>    	   in this case k would equal .0002611.
    

Ah, then the interest rate is .0002611*365 = 9.53% which if compounded 
continously would yield 10%.  

>    In other words, they solve for the exponential factor such that the
>    year-end return is the same... the initial slopes are not equal.

because the rates are actually different.  One can compare rates, and one can 
compare methods of compounding, but mixing the two confuses.

All of this to say there's only a hill of beans difference between quarterly,
monthly, daily, or continuous compounding.  As long as fractions of periods
are paid interest(the original noter's concern), there's no problem.  And,
all bond funds I've seen, do this.

Moffatt

    I'd like to try a new tangent.  I've chosen now to refinance my house
    to acquire money to put on an addition.  I chosen the route to get as
    much money as I can so I know what my maximum budget can be.  I'm
    working at getting the plans and permits done now, but don't believe
    I'll finish spending the money before next fall.  My guess is that I'll
    have 35-40K that I won't need to draw on until early next summer.  My
    first inclination is to try a six month CD, but then if I need the
    money earlier, I'm stuck.   I hadn't considered any mutual funds as I 
    figured the funds would be depleted next year.
    
        My objectives:
    
          - Principal safety
          - No penalties for withdrawal in partial amounts
          - positive, non-zero interest rate.
    
                            Any suggestions,
                                   David
          - Ability

    You'll spend it in six months or less, and you need liquidity?
    
    Stick it in a bank or money-market account--you don't want to 
    do anything else.
    
    		-John Bishop