I also see in your list that your don’t have a tbills fund in there.  I’d recommend running ishares’ SHV [iShares Barclays Short Treasury Bond Fund] through your algorithm, possibly as an alternative to cash.

Response:

MMF, not “cash”. I should clarify it in the newsletters that “cash” means “money market fund”. Thanks for pointing that out.

Assuming a 2% return. As you know, in November, I modified the ETF newsletter to make its performance verifiable by a company called TimerTrac. For the newsletter to be verifiable, the recommendations I give have to be consistent with the choices that they allow. They give me four choices as to what “money market fund” means. Of the four, I think only two make sense for the newsletter: cash with no interest or MMF with a 2% assumed return. I am going with the latter.

Interest rates vary depending on economic conditions. Sometimes, like now, they are well below 2%. Other times, they are well above 2%. For example, consider the historical performance of Vanguard Prime Money Market Fund (VMMXX). Over the past 5 years, its annualized return has been over 3%; since its inception in 1975, its annualized return is over 6%. Because of this, I think that over the long-term, 2% return is a more accurate representation of money market rates than 0%, and that’s what I’m going with.

As for current rates, according to Bankrate, you can get a savings account with as high as 1.70% APY. Though, of course, it’s tricky to send your money back and forth between a bank and a broker.

SHV. That I only have two bond ETF’s in my list is also due to the limited choices offered by TimerTrac. In addition, it makes things easier to have one fund in the list that is completely risk free. SHV is not risk free as it can and does decline in value.

Related posts:

1. The suggested money market fund makes no sense
2. A comprehensive list of all the ETF’s
3. Bonds continuing to earn money