I came across a post on r/LETFs about building a “super cash” position, something safely juiced to beat inflation. It got me thinking about a question I hear more than almost any other:
Beat inflation. Stay liquid. Don’t take much risk.
That’s it. That’s the ask. Between my podcast and my coaching calls, I’d struggle to count how many conversations I’ve had over the last two years where this was the person’s primary financial goal. Not “get rich.” Not “retire early.” Just: I wish my savings would not “quietly” lose value while I wait (and learn).
The demand for this is enormous. And almost nobody is solving it well. Let me walk through why.
Option 1: Deposit Accounts
This is where most people start, and it’s where most people get stuck.
The problem isn’t that deposit accounts can’t beat inflation, sometimes they do…for a stretch. The problem is the process. You’re not earning a yield, you’re chasing one. Every few months a new bank rolls out a “promotional rate” to pull in deposits, and if you want to capture it, you’re opening accounts, moving money, closing old ones, and doing it all again when the offer expires.
Run the numbers on your time, and the trade falls apart. You might pick up half a point of yield and lose far more than that in hours spent scanning rate-comparison sites (when they are available). This isn’t passive income. It’s a part-time job with a bad hourly rate.
Option 2: Government Bonds
Bonds look like the adult version of this strategy. They’re not.
Let’s start with the good news: in Europe, counterparty risk on sovereign debt is close to a non-issue. Call it the “ECB put”: there’s an implicit backstop (until there isn’t) that makes outright default on most issuers hard to imagine. Fine.
But counterparty risk was never the real problem. Duration risk is. Hold anything beyond the shortest maturities and you’re exposed to price swings if you need to sell before maturity. Stick to short duration to avoid that, and you run into the opposite issue: you’re almost guaranteed not to beat inflation, because that’s the price of avoiding both duration and credit risk.
The only way to push the yield up from there is to drift down the credit curve. Romanian government bonds, anyone? At that point you’re not avoiding risk, you’re just relabeling it and hoping the EU bails you out if it ever shows up.
And there’s a quieter cost too: bonds aren’t an ETF. You need to build an entire knowledge stack just to understand where to source them and how to actually place the trade. That friction alone pushes most people back to the bank.
Option 3: Risk-Laundering Products
This is the worst category, because it’s dressed up to look exactly like a solution.
Money-market-plus ETFs. Baskets of low-credit, short-maturity paper. “AAA” CLOs. Structured certificates. Different wrappers, same mechanism: every one of them hands you a yield pickup because, underneath, you’re selling insurance. Most of the time, nothing happens and you collect your premium. Then once, rarely but eventually, something DOES happen, and you lose big.
This is the picking-up-pennies-in-front-of-a-steamroller trade, repackaged for a retail audience with a short memory and a shaky grasp of tail risk. That combination is exactly why these products sell like candy. The label says “low risk”, the fine print says otherwise.
The One Honest Answer?
It is a hard problem to crack because the ask is “I want returns without risk”. Good luck with that. I’ve written about this before: the good-faith solution here is a Permanent Portfolio-ish lookalike.
I ran a backtest on testfol.io swapping VT in for SPY. In real (inflation-adjusted) terms, the average drawdown comes in around 6%, the kind of low-volatility profile you’d want. But if you look past the average and the picture changes: there are three separate stretches (depending on how strictly you count them) where the portfolio lost more than 20% in real terms.
That’s the disqualifying detail. This is supposed to be the money you reach for when you need it, not money you’re hoping recovers first. A strategy that can hand you a one-in-five hit to your balance right when you need the cash isn’t a safe-cash solution.
Let’s see if something else does:
Drawdown is the number that decides whether a “safe cash” strategy actually works in real life, so look at the chart before you read another word.
Even here, the worst stretch still runs about 15%. That’s an improvement over the plain Permanent Portfolio, but it’s still too deep for money you might need on short notice. There’s a more interesting detail buried in that same chart: the max drawdown in 2022 was worse than the max drawdown in the 1970s.
There’s no trend-following product with a track record reaching back to the 1970s in testfol.io, so we can’t just bolt one onto the backtest and see if it helps to solve the problem. What we can do is test a narrower question: if we shrink the 2022 drawdown, does that fix leak somewhere else?
It doesn’t look like it.
I also ran commodity ETFs and TIPS through the same analysis. Neither one seems to improve the situation, quite the opposite. The drawdown profile got worse in either case.
There are a few newer instruments — BINC, HIDE, HEQT — that could plausibly help our quest. But we just don’t have enough live track record yet to know if that’s a real edge or a story that hasn’t been tested by a real drawdown (R.I.P. QIS).
But here’s the part that actually matters.
If you’re capable of understanding this analysis, you probably don’t need this strategy. You’re already the kind of investor who’s fine with higher (20-ish) volatility, because you know how to manage your cash flows, your liabilities, and you’ve built a plan flexible enough that a drawdown never turns into a forced sale.
And that’s exactly why this doesn’t work as something you hand to someone else, even with only three or four ETFs in the mix.
Give a portfolio like this to someone without real investing experience, and the same sequence plays out almost every time. First they start staring at each line item. Then they start bringing their own “ideas” to the table. Then they start questioning the rebalancing, right when the rebalancing matters most. Add to that a trend-following sleeve that needs regular maintenance, someone has to keep checking the model is still doing what it’s supposed to, and you’ve built something that only works for people who don’t actually need it. If you want it to work.
What that person needs isn’t the recipe. It’s the finished dish: a single ETF that delivers the whole thing pre-assembled, with nothing left to second-guess.
Would you buy the following as an alternative to a money market fund?
I find the eye test an interesting experiment. But I do not think any marketing material would ever show you an inflation-adjusted graph, even if the investment is designed to beat inflation with low volatility.
Most likely, you will be presented with something like this (same graph above but not inflation-adjusted):
Which…would probably work?
Let’s go back to our inflation-adjusted graphs. Here is a better way to understand how low the volatility is:
Not bad for an investment that provides 1.8% ABOVE inflation annually.
Or 1.6% ABOVE your standard cash investment:
Starting in 2009, cash instruments have lost money once you adjust for inflation. Not in a rough patch here or there: on net, across the whole stretch.
Go tell that to your friend who swears by bank deposits. Sure, they might pick up enough spread over the central bank rate to land roughly even with inflation today. But I’d bet they haven’t connected the dots on what that actually means: they spent almost twenty years running just to end up exactly where they started.
What I am reading now:
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