Bookkeeping: New Position in iShares Short Treasury Bond (SHV)

Long time readers will know I've been holding cash in a 10-25% range for pretty much the entire life of the fund. In Marketocracy.com I don't get this cash swept into a money market and hence for nearly 13 months have been earning 0% on this money. I was talking to an investing friend yesterday and bemoaning this fact, and he mentioned some ETFs which are as close to a money market as you can get - i.e. i want stability of principal and try to get a few percent points of return.

His suggestion was iShares 1-3 Year Treasury Bond (SHY) which looks, from volume, to be a very popular instrument. Average duration is 1.74 years and a 30 day yield around 2.5%.

I am going even more conservative than that since I effectively want as close to a money market as possible and am using iShares Short Treasury (SHV) which is less popular (by volume) but has average duration of 0.34 years and a 30 day yield around 1.8%.

So not much of a difference in yield and 1/4th of a year is as close as you are going to get to "cash" I suppose. And 1.8% yield is better than 0% I've been getting. The main problem is commission costs - as I liquidate this to buy other positions I'll incur commissions each time I trade "out" of a piece of SHV, but as long as it is not often enough to eat the 1.8% yield away I suppose I'll still come out ahead.

So while I'll create this as a separate position it is effectively "cash" in terms of replacing a money market account that I'd normally have in a brokerage. I only wish I had done this over a year ago since it would of helped goose returns a bit. In this environment even 1% helps.

Since I don't want to incur commissions each time I leave "cash", I'll actually keep a bucket of cash to the side and then put 75-80% of my free cash into this instrument so we create some interest on the money. For example, we currently have about $200K in cash, so I put $160K into the ETF. This way if I decide to buy something for $40K or less, I won't be paying the commission to "sell" the ETF.

Obviously I won't have to deal with that in a normal brokerage where free cash is swept into a money market.

Long iShares Short Treasury Bond in fund; no personal position