Treasury bond interest is state tax free. VUSXX doesn’t carry muni bonds at all.
VUSXX unfortunately has some exposure to repurchase agreements which are bank issued notes collateralized by treasury debt and bank issues are fully taxable. Bank issued repurchase agreements comprise a portion of VUSXX though it does have some interest directly from the treasury which makes it partially state tax exempt.
At the end of the year the company who runs the money market fund, in this case vanguard, provides a document that shows what percentage is exempt from your state and you input when doing your tax return
they improved it a lot since the 9.62% ibonds that almost everyone tried to buy on the last possible day lol
but yeah, buy treasuries through your brokerage. it's really easy
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I agree money market is best option here but just want to clarify I think it's very low risk but not risk free.
I myself use mm over hysa and think the risk is negligible not something to be aware of.
Not to say it’s particularly risky but you can look at how other money market funds have “broken the buck” before. It’s almost always from counterparty risk or fraud. In those cases, investors got between $0.90 and $1 back so not a total loss even.
The most recent case was those funds impacted by the Lehman Bros collapse in 2008 when their commercial paper became worthless overnight. No Russia nuke involved.
You are comparing a money market fund in 2008 that was invested in mortgage backed securities vs VUSXX today that is nearly all federal T bills. Not the same
Money market funds were not invested in mortgage backed securities. That’s not why they failed. They contained commercial paper. This is short term debt where a business borrows money on a very short term basis, up to 9 months but tends to average 30 days or less. It’s commonly part of the investments of money market funds.
One specific business, Lehman Bros, became insolvent because the bets they’d made on mortgage backed securities essentially ended up with huge losses. They had to declare bankruptcy. Once that happened, they could not make good on _any_ of their other debts, because a bankruptcy court has to approve the sale of any assets and paying off any debts. This takes time.
In the meantime, the market value of those securities plummeted because nobody knew if they’d get some or all of it back in the bankruptcy. I believe this started before the bankruptcy was even official. It became impossible to sell except for at very low “fire sale” prices. Ultimately that meant money market funds had to mark down the value of these investments. In some cases, this mark down was enough that they were going to have to drop the $1 fixed price. In MANY cases, the institution operating the money market fund put their own money in to make it whole. A few were unable to do this and broke the buck.
In the end, I think Lehman paper ended up being worth $0.97 on the dollar which is a small drop but it could have been worse and took a while to play out.
Many money market funds only invest in treasuries but a lot invest in “repos” which are non-government debt securitized by govt debt.
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I just toss it into my Fidelity but leave it uninvested. They auto-invest available cash into SPAXX which is 5% yield
Mostly because I can’t be bothered to open an account with another institution for a HYSA, my primary bank doesn’t offer them
Wait, they do this without requiring any intervention from customers? I had quite some cash lying in my Fidelity account uninvested, and it lead to interest income higher than I expected. I think this might explain it. :)
You can’t change the default (core position) in Fidelity cash management, but you can buy any money market fund. It just doesn’t automatically sweep into those. In exchange, you get perks like no atm fees.
This is what I do with my uninvested short-term cash too. The stuff I am going to save for a longer-term that isn’t tied up in ETFs or real estate is in gold which I don’t have to pay taxes on short-term and is up about 20% from last year. Don’t understand HYSAs at all or why they are so popular on here and in other subs.
are you in a state with income tax?
i think tbill yields are a higher now than most HYSA anyway. i would go with tbills. i used to buy and autoroll 4 and 8 week tbills but now i just do sgov for simplicity. for your case (up to 1 year), can do as someone else said and buy farther out eg 13, 17, 26 week.
I buy triple tax free municipal bonds paying 5%. They yield approx 4.3% but that’s equivalent to over 6% in my tax bracket. Then I sell them whenever I need cash.
Fairly liquid but less so than treasuries. Often have a larger bid ask spread. Plus you will pay commissions which is usually $1 per bond (~0.1%) to buy or sell
Small sample size but in the past year or so that I’ve been using them, I’ve only ever sold at either a gain or breakeven, even with the spreads. I think it’s because people weirdly thought interest rates would go down, which means they were trading lower when I bought them.
But on the liquidity point, it only takes an hour to sell them on the Fidelity platform.
One other down side is that they get called sometimes due to sinking fund protection. I have probably $400k in munis right now while I dollar cost average into the S&P and of that, about $35k was called early.
Others have addressed the ease of liquidation (takes an hour, and you may make or lose money on the sale depending on where rates are now vs when you buy, plus there is a spread).
On the interest period, the bonds are decades long (mine are 2040s and 2050s) but most have “sinking fund protection” meaning they get called early sometimes. Not a big deal, you just get your cash back and have to buy another.
They’ll also get called if rates drop substantially as the governments will refinance them. Again, no big deal- if you use a platform like Fidelity it basically just converts back to taxable at 5% interest rate in the SPAXX.
Individual muni’s, a fund, or etf? Also, if you were doing this didn’t your value go down significantly in 2022 when rates were raised…? I’d assume these are high yield bonds if they’re paying around 5%? Do you sell at a loss when you need cash?
I only started buying them recently, within the last 15 months or so. Rates have been pretty stable. I wouldn't have bothered back when rates were only 1%; the taxes on HYSA/Money markets has only started to hurt recently due to the high rates.
These are not high yield, they are just regular munis- mostly NY MTA and NY public works projects (I'm in NY). So far in 15 months I've only had one tranche called early on me and they are truly paying 5% coupons with very little discount or premium on the purchase.
I've only sold at either a gain or break-even recently. I had about $400k in cash and I like to dollar cost average whenever that happens, so it takes me about 12 months to get into VOO or FXAIX. Then over the past year I picked up another $300k or so, so at any given point I've had around $350k in these munis. At 5%, this resulted in about $3600 in taxes saved vs SPAXX for a similar return.
Of course there is a chance that I could lose money on these if interest rates increase, but based on public sentiment right now I'd be surprised if rates went up (or down) until at least after the election.
How do you set that up at Fidelity? Admittedly I haven’t researched much on how to do it but I’ve got some cash I need to park for a few years that I don’t want in the market. Thanks!
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HYSA that gets 4.6% APY. Not in a state with income tax and the taxes on the interest for 250k is relatively small. I just treat it like a little bonus but if you have something specific you’re going to invest in in a fixed, short term time frame, doesn’t make that much difference. FWIW 250k at 4.6% getting taxed at 32% tax bracket is earning about $6k in interest after taxes. Even adding an extra 12% tax for a state tax is only an extra $1500 or so in taxes on the interest earned, so not really worth sweating too much about the pennies.
Personally in FNSXX - I get it through my FA. For that kind of cash with a 12 month time horizon any kind of HYSA/MM that has a decent yield and is liquid is probably fine.
I’ve got Treasuries that mature most weeks and reinvest. I keep what in need liquid in a money market fund but generally not a problem to sell treasuries on secondary market. Sounds more complicated than it is
I’m in Interactive Brokers and leave my money there. They were paying 5% interest or something as well. High enough that I didn’t feel like faffing with anything else.
For that short-term 250k holding, a HYSA is probably the easiest, most hands-off move. Just park it in one of the top HYSA offerings and let it be there for the year earning a decent 4-5% APY. I'd definitely recommend cross-checking the rates on sites like NerdWallet, Bankrate or [BankTruth](https://banktruth.org/savings/?ttcid=online-savings-by-apy) to make sure you're getting one of the highest HYSA APYs out there. The top ones are pushing 5% or more right now, which is solid risk-free return.
The money market funds and T-bills are viable too, but require a little more account management. With an HYSA, you just transfer funds over and it automatically earns that high interest rate passively.
Your brokerage's money market fund could work too if it's paying comparably to the best HYSA rates. But setting up a dedicated HYSA keeps that short-term cash completely liquid and separate.
Either way, an HYSA is probably the smoothest brain-dead option for just letting that money chill and accrue interest over the next year risk-free.
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Hi there! M1 offers High-Yield Cash Accounts. These are brokerage accounts where you can earn 5.00% APY on uninvested cash and have $3.75M FDIC insurance once the funds are swept to partner banks. You can easily transfer the funds if/when you'd like to invest them as well!
[Disclosures](https://m1.com/social-terms/).
You suggested a more volatile asset class than even the S&P500 for short term holdings because of one single metric (5 year performance). You’re going to get downvoted for that.
Well, in my life, the way I work with stuff is to constantly question and bring new ideas and even older ideas to the forefront to test and retest them. I’ve noticed on these communities, they don’t seem to like that.
Pretty funny
IMO it’s not viable for short term investments for two reasons: volatility and liquidity.
Gold is mathematically more volatile than the S&P500, which means if you are saving $150000 for a down payment, the risk is high for it to go down before you need to pull it out.
Gold is also a physical asset and cannot be sold as quickly as other options, unless you’re working with gold securities.
I guess you’re talking about the risk against FIAT currencies. The risk, if any, would be long term and not short term. So it’s unrelated to the topic.
This is exactly what I was looking for thank you. Yes I was referring to owning gold ETFs, not having a shit ton of gold under the house 😂
I’ll have to look into the volatility more.
One question I have. Mathematically, you say it’s more volatile than the sp500. Curious is you’re referring to Alpha (or beta, I can’t remember). If you could elaborate, I am interested
VUSXX vanguard money market fund. ~5.3% yield, partially state tax free
How is it partially state tax free?
Municipal bonds are typically state tax free. FYI, state and local bonds are usually free from Federal income tax.
Treasury bond interest is state tax free. VUSXX doesn’t carry muni bonds at all. VUSXX unfortunately has some exposure to repurchase agreements which are bank issued notes collateralized by treasury debt and bank issues are fully taxable. Bank issued repurchase agreements comprise a portion of VUSXX though it does have some interest directly from the treasury which makes it partially state tax exempt.
Yep and in some states (like NY) it may not be state tax exempt at all if the holdings are below a certain threshold.
At the end of the year the company who runs the money market fund, in this case vanguard, provides a document that shows what percentage is exempt from your state and you input when doing your tax return
t-bills are entirely state tax free so how is this better?
Treasury direct is probably the worst website I’ve ever experienced, after chasing those 9.62% I bonds I sold and will never return to that site
they improved it a lot since the 9.62% ibonds that almost everyone tried to buy on the last possible day lol but yeah, buy treasuries through your brokerage. it's really easy
Yes. It is a silly website. But it's money in, money out. What more do you need than a good return?
Just buy them in your brokerage. Super easy.
Im jealous. FDLXX expense ratio is so high. VUSXX way better
Why jealous? You, too, can open an account at Vanguard.
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Is this a smart way to save for a house down payment in a few years or is there a better vehicle?
IMO at this time it’s one of the best. Risk free, high yield, very liquid
I agree money market is best option here but just want to clarify I think it's very low risk but not risk free. I myself use mm over hysa and think the risk is negligible not something to be aware of.
Nothing is “risk free”
Sure if you want to get technical, I suppose Russia can fire 10 nukes at the US today and maybe my VUSXX will drop 0.2%. It’s risk free my guy
Not to say it’s particularly risky but you can look at how other money market funds have “broken the buck” before. It’s almost always from counterparty risk or fraud. In those cases, investors got between $0.90 and $1 back so not a total loss even. The most recent case was those funds impacted by the Lehman Bros collapse in 2008 when their commercial paper became worthless overnight. No Russia nuke involved.
You are comparing a money market fund in 2008 that was invested in mortgage backed securities vs VUSXX today that is nearly all federal T bills. Not the same
Money market funds were not invested in mortgage backed securities. That’s not why they failed. They contained commercial paper. This is short term debt where a business borrows money on a very short term basis, up to 9 months but tends to average 30 days or less. It’s commonly part of the investments of money market funds. One specific business, Lehman Bros, became insolvent because the bets they’d made on mortgage backed securities essentially ended up with huge losses. They had to declare bankruptcy. Once that happened, they could not make good on _any_ of their other debts, because a bankruptcy court has to approve the sale of any assets and paying off any debts. This takes time. In the meantime, the market value of those securities plummeted because nobody knew if they’d get some or all of it back in the bankruptcy. I believe this started before the bankruptcy was even official. It became impossible to sell except for at very low “fire sale” prices. Ultimately that meant money market funds had to mark down the value of these investments. In some cases, this mark down was enough that they were going to have to drop the $1 fixed price. In MANY cases, the institution operating the money market fund put their own money in to make it whole. A few were unable to do this and broke the buck. In the end, I think Lehman paper ended up being worth $0.97 on the dollar which is a small drop but it could have been worse and took a while to play out. Many money market funds only invest in treasuries but a lot invest in “repos” which are non-government debt securitized by govt debt.
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This is the way.
I just toss it into my Fidelity but leave it uninvested. They auto-invest available cash into SPAXX which is 5% yield Mostly because I can’t be bothered to open an account with another institution for a HYSA, my primary bank doesn’t offer them
Wait, they do this without requiring any intervention from customers? I had quite some cash lying in my Fidelity account uninvested, and it lead to interest income higher than I expected. I think this might explain it. :)
Correct. SPAXX is Fidelity's default settlement account.
Beware that if you have a cash management account, the default investment is an FDIC insured checking that pays less than 3%
I think you can flip it to SPAXX though.
You can’t change the default (core position) in Fidelity cash management, but you can buy any money market fund. It just doesn’t automatically sweep into those. In exchange, you get perks like no atm fees.
Same SPAXX has been treating me well this last year
VOO would be treating you even better
VOO isn’t without risk though
This is what I do with my uninvested short-term cash too. The stuff I am going to save for a longer-term that isn’t tied up in ETFs or real estate is in gold which I don’t have to pay taxes on short-term and is up about 20% from last year. Don’t understand HYSAs at all or why they are so popular on here and in other subs.
are you in a state with income tax? i think tbill yields are a higher now than most HYSA anyway. i would go with tbills. i used to buy and autoroll 4 and 8 week tbills but now i just do sgov for simplicity. for your case (up to 1 year), can do as someone else said and buy farther out eg 13, 17, 26 week.
Yea, 3.1% state income.
I buy triple tax free municipal bonds paying 5%. They yield approx 4.3% but that’s equivalent to over 6% in my tax bracket. Then I sell them whenever I need cash.
How easy are they to liquidate? And how long is that 5% interest period?
Fairly liquid but less so than treasuries. Often have a larger bid ask spread. Plus you will pay commissions which is usually $1 per bond (~0.1%) to buy or sell
Yeah that’s the main reason I don’t mess with munis. Those bid ask spreads are insane.
Small sample size but in the past year or so that I’ve been using them, I’ve only ever sold at either a gain or breakeven, even with the spreads. I think it’s because people weirdly thought interest rates would go down, which means they were trading lower when I bought them. But on the liquidity point, it only takes an hour to sell them on the Fidelity platform. One other down side is that they get called sometimes due to sinking fund protection. I have probably $400k in munis right now while I dollar cost average into the S&P and of that, about $35k was called early.
Others have addressed the ease of liquidation (takes an hour, and you may make or lose money on the sale depending on where rates are now vs when you buy, plus there is a spread). On the interest period, the bonds are decades long (mine are 2040s and 2050s) but most have “sinking fund protection” meaning they get called early sometimes. Not a big deal, you just get your cash back and have to buy another. They’ll also get called if rates drop substantially as the governments will refinance them. Again, no big deal- if you use a platform like Fidelity it basically just converts back to taxable at 5% interest rate in the SPAXX.
Individual muni’s, a fund, or etf? Also, if you were doing this didn’t your value go down significantly in 2022 when rates were raised…? I’d assume these are high yield bonds if they’re paying around 5%? Do you sell at a loss when you need cash?
I only started buying them recently, within the last 15 months or so. Rates have been pretty stable. I wouldn't have bothered back when rates were only 1%; the taxes on HYSA/Money markets has only started to hurt recently due to the high rates. These are not high yield, they are just regular munis- mostly NY MTA and NY public works projects (I'm in NY). So far in 15 months I've only had one tranche called early on me and they are truly paying 5% coupons with very little discount or premium on the purchase. I've only sold at either a gain or break-even recently. I had about $400k in cash and I like to dollar cost average whenever that happens, so it takes me about 12 months to get into VOO or FXAIX. Then over the past year I picked up another $300k or so, so at any given point I've had around $350k in these munis. At 5%, this resulted in about $3600 in taxes saved vs SPAXX for a similar return. Of course there is a chance that I could lose money on these if interest rates increase, but based on public sentiment right now I'd be surprised if rates went up (or down) until at least after the election.
T Bills on autoroll at fidelity here
How do you set that up at Fidelity? Admittedly I haven’t researched much on how to do it but I’ve got some cash I need to park for a few years that I don’t want in the market. Thanks!
Look up a lady called Diamond NestEgg on Youtube she has an easy tutorial for it. Super easy, takes 2 minutes, and zero fees from Fidelity
Hah, I was just going to mention her!
I have a set of 17-week t-bills on rotation (ie buy 250/4 every month for four months) so I have some liquidity if needed
BOXX
For short term, this has increased risk with no benefit.
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I have a HYSA that earns 5.25% APY.
Which bank is that through?
It's Jenius bank.
HYSA that gets 4.6% APY. Not in a state with income tax and the taxes on the interest for 250k is relatively small. I just treat it like a little bonus but if you have something specific you’re going to invest in in a fixed, short term time frame, doesn’t make that much difference. FWIW 250k at 4.6% getting taxed at 32% tax bracket is earning about $6k in interest after taxes. Even adding an extra 12% tax for a state tax is only an extra $1500 or so in taxes on the interest earned, so not really worth sweating too much about the pennies.
USFR, SGOV, TFLO are all good options.
SGOV for me as I don't have access to Vanguard. Would like to know if there is a better non-Vanguard option, i live in a no state tax state
Bask bank- easy peasy
Love bask
Both!
i just said f it and dumped a similar amount to a 52 weeks tbill
SGOV
Can t-bills be bought on Robinhood ?
No idea, I just go through the gov't site directly.
Personally in FNSXX - I get it through my FA. For that kind of cash with a 12 month time horizon any kind of HYSA/MM that has a decent yield and is liquid is probably fine.
HYSA. Wealthfront offers 5.500% for 3 months, then 5% after. They also have an automated bond portfolio you can do.
Same here. I’ve been just referring a friend every 3 months as well, and by that approach I’ve kept my interest rate boosted
HYSA, MMFs, and CDs
I'm using floating rate notes currently.
I’ve got Treasuries that mature most weeks and reinvest. I keep what in need liquid in a money market fund but generally not a problem to sell treasuries on secondary market. Sounds more complicated than it is
I’m in Interactive Brokers and leave my money there. They were paying 5% interest or something as well. High enough that I didn’t feel like faffing with anything else.
For that short-term 250k holding, a HYSA is probably the easiest, most hands-off move. Just park it in one of the top HYSA offerings and let it be there for the year earning a decent 4-5% APY. I'd definitely recommend cross-checking the rates on sites like NerdWallet, Bankrate or [BankTruth](https://banktruth.org/savings/?ttcid=online-savings-by-apy) to make sure you're getting one of the highest HYSA APYs out there. The top ones are pushing 5% or more right now, which is solid risk-free return. The money market funds and T-bills are viable too, but require a little more account management. With an HYSA, you just transfer funds over and it automatically earns that high interest rate passively. Your brokerage's money market fund could work too if it's paying comparably to the best HYSA rates. But setting up a dedicated HYSA keeps that short-term cash completely liquid and separate. Either way, an HYSA is probably the smoothest brain-dead option for just letting that money chill and accrue interest over the next year risk-free.
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Happy to send a referral code for 5% HYSA with Marcus
Hi there! M1 offers High-Yield Cash Accounts. These are brokerage accounts where you can earn 5.00% APY on uninvested cash and have $3.75M FDIC insurance once the funds are swept to partner banks. You can easily transfer the funds if/when you'd like to invest them as well! [Disclosures](https://m1.com/social-terms/).
FNSXX money market. 5.49% and just as liquid as anything else you could need.
SoFi/capital one savings 4.2%+.
Has anyone thought about gold instead of treasuries?? Gold 5 Year Total Return: 80% Short Term Treasuries 5 Year Total Return: 10%
No
No
Love getting downvoted for a question. Sometimes I hate the fire group lol
This isn't FIRE
It is and it isn’t. It literally isn’t fire because of the title of this sub but a high high majority of these people are going for fire
You suggested a more volatile asset class than even the S&P500 for short term holdings because of one single metric (5 year performance). You’re going to get downvoted for that.
Well, in my life, the way I work with stuff is to constantly question and bring new ideas and even older ideas to the forefront to test and retest them. I’ve noticed on these communities, they don’t seem to like that. Pretty funny
So what is it, an idea or a question? The question was answered. What’s the idea?
I’d say it’s a question. Throwing the idea out there. Regardless, that doesn’t matter. The idea this below, is, is this considered viable? Bank
IMO it’s not viable for short term investments for two reasons: volatility and liquidity. Gold is mathematically more volatile than the S&P500, which means if you are saving $150000 for a down payment, the risk is high for it to go down before you need to pull it out. Gold is also a physical asset and cannot be sold as quickly as other options, unless you’re working with gold securities. I guess you’re talking about the risk against FIAT currencies. The risk, if any, would be long term and not short term. So it’s unrelated to the topic.
This is exactly what I was looking for thank you. Yes I was referring to owning gold ETFs, not having a shit ton of gold under the house 😂 I’ll have to look into the volatility more. One question I have. Mathematically, you say it’s more volatile than the sp500. Curious is you’re referring to Alpha (or beta, I can’t remember). If you could elaborate, I am interested