If it sounds too good to be true …
Fido provides a choice of money markets for one’s core (trading account). Yielding 0. The advantage is money market funds aren’t restricted by Fido as to how often you can can trade in and out,
My understanding (perhaps wrong) is that ETFs also have no restrictions on trading (and no fees). In that case, why not select an ultra short, short term corporate, or other ETF and maybe earn an extra percent? FLDR may not be the best option, but I’ll toss it out as one posdibility.
Am I missing something?
Comments
M* Link
RPHYX has done the best of my 4 cash holdings this year (but it can not be traded during the day and has a minimum holding period):
RPHYX Link
You can keep all your cash in a savings account, but when you need to buy something, you transfer the cash to your checking account. (Technically some transfers from savings accounts are limited, but we'll ignore that detail.) The point is that there's a difference; you can't use a savings account in exactly the same way as a checking account.
Same thing here. You can use an ETF as a savings account. But you're going to have to manually move money into the "checking" account (core fund) if you want to use it. And with an ETF, it's going to take two days before you can take the money out of Fidelity. (You can use the ETF proceeds for trading almost immediately - different brokerages handle this slightly differently and I'm not positive about Fidelity's rule here.)
There's also the matter of tracking cap gains. @Investor had a subthread (under RPHYX) that covered this a few days ago. But you already know this, as you've been using a TRP short term fund this way. Likewise you also know that these funds fluctuate in value.
ETFs, especially when used for cash and traded short term have additional costs. Notably spread. The spread on FLDR is sizeable: 0.06% (on average). If you were to buy $100 and immediately turn around and sell it, you'd lose around 6¢. You might pay $100.03 to buy the fund and receive $99.97 when you sold it. You could try to mitigate that by placing limit orders, but then you run the risk of seeing some of your orders go unfilled.
6¢ might not sound like much, if you're doing this even once a month, that's nearly 3/4% eaten up in transaction costs.
If on the other hand you're letting most of the cash sit (so you're only losing 3/4% on a small part of the cash), then you don't need usually need instantaneous access for much of the cash. In that case, you could still use a short term bond fund for your cash reserve.
Taxable or sheltered account?
I ask, as the paperwork for a taxable account isn't worth my time; for the small amount of interest earned for a tax year via an investment as FLDR. Note: I recall that one doesn't have to report an interest earned amount if less than $15. So, perhaps not a problem; depending on the amount of money invested. If we have money parked in the core cash account, it is likely from the sale of an investment. Generally, we will leave the money in place, versus a purchase of an issue, such as FLDR; awaiting a better investment opportunity.
Hi @davfor
Your graph is correct, but this reflects a one-time event (hopefully).
So, yes; FLDR was volatile during a time period; as well as other debt investments within mutual funds or etf's holding this type of debt. I suspect that most folks who don't watch often, we not aware of anything happening with these holdings; and that all looked well when viewing 6 months later.
The credit markets lockup was discussed here beginning in late February, 2020.
Spring 2020 credit related liquidity lockup
Regards to both of you,
Catch
*** Have to? Are we simply talking sound financial practice here? Or, does Fido prevent you from using the more direct route between ETF and another purchase or sale?
What I kind of surmise is that buying directly out of an ETF would take at least 1 extra day to settle, making the intended purchase more susceptible to price fluctuation. If true, that would be enough to convince me to use a money market fund for transactions.
And at TRP they won’t allow you to sell 99% of a non-money market fund because the system is set up to retain a certain % in case of daily price fluctuation. Found that out the hard way recently when I tried to sell / exchange most, but not all, of TRBUX from IRA to my TOD account. (However, you can do so by selling all and closing the account.)
Re cap gains. This is a tax deferred account. But the headache caused by using TRBUX as a checking account is the reason I began using Price’s short term and money market muni funds. And did see @Investor’s comment on the matter.
I’m one not to worry about putting cash at an elevated level of risk. I know others don’t feel the same. Even 0.5% earned on an ultra short bond fund looks better than 0.0%.
Thanks for all the thoughts.
Anyway, that one works for me as a cash sub while maintaining a small amount in a mm core fund.
Right now I hold MINT, BSV, JPST, FLRN and RPHYX in my withdrawal bucket. RPHYX has of course been a favorite on this board and with David Snowball for a long, long time. It's been closed most of it's existence but has been open for about a year now. It is closing again this month to new investors (if it hasn't already).
Prefer to take risk in other areas.
There are two separate transactions. The broker literally brokers (makes the connections for) each of these transactions. But it doesn't connect your ETF buyer directly to the seller of your new investment. Same idea if you're going between two different fund families - there are still three parties involved (aside from the broker).
I don't trade ETFs frequently, so I was trying to remember what the rules were the last time I did (earlier this year). I was able to sell shares of an ETF and on the same day place an order to purchase a T. Rowe Price mutual fund. I just had to wait until the sale executed to know the amount of the proceeds. This was at Merrill Edge.
They acknowledged that it didn't make much sense because they were floating me the cash for a day (in an IRA) since the purchase would settle a day earlier than the sale. I was told that somehow, because I was good for the money, the trade was permissible.
This turns out to be an advantage of ETFs. The instant the trade executes, you know the amount of cash you (will) have available so you can immediately enter a purchase order using 100% of the proceeds. Still, this is not a "direct route". I believe you could have sold 99% of your shares. Though as you said, you couldn't ask TRP to raise cash equal to 99% of yesterday's close, because there was no assurance you had enough shares for that.
I didn’t try very hard. Perhaps. It was part of a distribution (RMD+). I like to deal in round numbers. Plan was to draw the amount needed for the distribution and than exchange the small remaining balance into something else next day. A message popped up telling me I could only exchange X dollars out. When I ran the math, I believe it was around 3% they wanted to retain. To keep it simple, I pulled a (lesser) round number from that fund and the rest from another.
@msf - thanks for clarifying the other issue for me. I have a lot to learn about brokerage trading vs direct at a single fund house. But the wider selection is kinda nice.
On another point … A Fido phone rep referenced a “good faith cash advance up to $25,000” available for certain situations. Sounds like you ran into something similar elsewhere. At Fido you do need to phone that one in.
This is the etf.com link below; and you can discover more when logged-in at Fido. Tis available at Fido.
STPZ