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Short Term High Yield vs. CDs vs. Treasuries vs. I-Bonds
My indicators triggered a sell, in early Feb. Since then I'm at 99+%, mainly in two MM SWVXX-SNAXX paying 4.47-6.2%. I will join the next bond uptrend.
Why do you have any money in SWVXX yielding 4.47% when SNAXX is yielding 4.62%? Not enough money is that account to qualify for SNAXX?
Takes a million dollars to get into SNAXX, so you often must give up about .15% yield and settle for its sibling SWVXX. I was able to buy SNAXX, in one of my accounts, in March of 2022, when I sold/reduced OEFs, but since then I have been able to retain SNAXX, at much lower amounts. With interest rates continuing to rise, I choose to own both SNAXX and some short term CDs paying 5%.
I'm following a similar allocation strategy, though with VUSXX (yielding 4.52%, insignificantly safer [Treasury assets]), and short term T-bills (similar yield to CDs); both fund and T-bills are state and local tax exempt.
The situation with MMFs is fluid. For a long time, VUSXX paid so much less than some other funds (not just prime but even government MMFs) that using it made no sense. Also, it used to have a $50K min; Vanguard reduced that some time ago to $3K.
Like you, I've played the game of meeting a MMF's initial min and then reducing my position. Though nowhere near $1M. FZDXX (4.47% yield) has a $100K min in taxable accounts, but by prospectus can be reduced to a $10K maintenance amount. Since I use this as my checking account (and can let the balance drop even lower), I'm willing to give up a few basis points in after-tax performance for the convenience.
In an IRA, FZDXX requires only $10K to bootstrap. I've done that, leaving just 80¢ or so in the position.
@msf : You mentioned VUSXX in above post. What % is tax exempt from state taxation ? Another question while I have your ear. Tax info from Van Guard shows % of treasury dividend from a fund. If I take qualified & non qualified dividends & add them together times percentage, would that be the correct state exemption ?
msf : You mentioned VUSXX in above post. What % is tax exempt from state taxation ? Another question while I have your ear. Tax info from Van Guard shows % of treasury dividend from a fund. If I take qualified & non qualified dividends & add them together times percentage, would that be the correct state exemption ?
This is how Vanguard chooses to run the fund (and AFAIK has, for years). Per prospectus, the fund is allowed to invest also in "repurchase agreements fully collateralized by U.S. Treasury securities." But it usually doesn't use repurchase agreements. This is important because "Income generated from investments in repurchase agreements with the federal reserve are generally subject to state and local income taxes." https://investor.vanguard.com/investment-products/mutual-funds/profile/vusxx#overview
In contrast, Fidelity's Treasury (as opposed to "Treasury Only") MMF, FZFXX, currently has 85% of its portfolio invested in (state-taxable) repurchase agreements. And in 2022, only 23.6% of its income was state tax-exempt. This is doubly important; not just because of the low percentage generally, but because so little was invested in Treasuries that none of the income was state tax-exempt in NY, Calif. or Conn. (special laws in those states).
You are correct that total divs (qualified + non-qualified) x exempt percentage = state exemption (but see NY, Calif., Conn.). It is sometimes easier just to read the total div figure off of box 1a on the 1099-Div form. But if you have multiple holdings in a brokerage, you'll have to handle each fund separately (different percentages for each fund).
My indicators triggered a sell, in early Feb. Since then I'm at 99+%, mainly in two MM SWVXX-SNAXX paying 4.47-6.2%. I will join the next bond uptrend.
To add to the skepticism, the timing of the post is curious. "Indicators triggered a sell in early Feb.", yet this sell wasn't posted until the last week of February, right after the worst market decline of the year.
To OJ: if the timing had been perfect, it seems we would have heard about it immediately, rather than weeks later, when the indicators finally proved out (for the moment).
It makes one wonder if these indicators (with a nod to Samuelson) have signaled nine of the last five market declines.
The collective group will give questionable or even incoherent investment choices a pass but doesn’t let bragging go unnoticed. That’s pretty good. How to deal with blatant bragging has been on my mind this week. Spoke to an old work colleague for the first time in a decade. He immediately told me he “bought $500,000 in one year treasurys that day. It wasn’t in the context of the conversation and I was speechless.
Short term CD rates of 5% are becoming more commonplace. My Capital One Bank has been offering 5% CDs for an 11 month period in recent weeks. Schwab has 4 banks offering 5% CDs for one year. If you go shorter for 6 to 9 months, you can get about 6 banks offering 4.9% CDs, and if you want to go a little longer to 18 months, there are about 4 banks offering 4.9% CDs at Schwab. I am expecting CD rates, for shorter term CDs, to approach 5.5% in the next 3 to 6 months. It is hard for a retired investor, to ignore 5%+ CDs, in very volatile markets. I am getting 4.62% Money Market rates at Schwab, in my IRA account, and I fully expect those rates to creep up to around 4.75% in the next 3 to 6 months--much better than my more liquid banking accounts at Capital One.
msf : Thanks again for covering all the bases. At this time I'm looking at an amended 2021 return.
It occurred to me that I may have been a little loose in saying that divs = qualified divs + nonqualified divs. That's somewhat of a tautology, relying on the "law of the excluded middle" - everything is X or not X. I didn't go into what "nonqualified div" means.
Box 1(a) - all divs - includes qualified divs (box (1(b)) and ... - short term gains (for mutual funds) - section 199A dividends (from REITs; these get a special 20% break in taxes) - "ordinary" nonqualified divs (nonqualified divs other than STG or Sec 199A divs)
Perhaps I still shouldn't go into what "nonqualified div" means. That likely makes things more confusing. Just stick with 1(a) for each fund if you have that on your supplemental information (detail) statement for each fund.
Several posts I made over the years 1) 2020, going to cash on 2/29/2000(link). I actually posted here too(link) 2) In early 2022, going to cash(link). 3) In 11/2022, going back in and why (link). 4) I posted about one good indicator I have been using for years, called 3 line break. You can read about it (here). I explained some of my trades. If you look at 3 line break (link) it's very clear why I sold early in Feb. HYD,ORNAX are HY Munis.
Takes a million dollars to get into SNAXX, so you often must give up about .15% yield and settle for its sibling SWVXX. I was able to buy SNAXX, in one of my accounts, in March of 2022, when I sold/reduced OEFs, but since then I have been able to retain SNAXX, at much lower amounts. With interest rates continuing to rise, I choose to own both SNAXX and some short term CDs paying 5%.
I also own SNAXX, I also transferred one share from Rollover to Roth and switched from SWVXX to SNAXX at Roth. When I trade, I made sure to leave 1-2 shares of SNAXX, so I can buy it later, when I sell.
I started laddering T-Bills with 4-week/8-week bills, and am working my way to a target of 52-week bills three times a year. I've also started moving money out of VTAPX to a 5-year TIPS ladder, along with $25,000/year in I-bonds.
Very nice move. We started building T bill ladder last year. Now we are expanding them up to 2 year (notes) as its yield move up to 4.7%. More T bills and CDs are maturing in coming months to fund these new ladders.
Getting back to core bond is ongoing for the next few months. The volatility reminds me of 2022.
Comments
The situation with MMFs is fluid. For a long time, VUSXX paid so much less than some other funds (not just prime but even government MMFs) that using it made no sense. Also, it used to have a $50K min; Vanguard reduced that some time ago to $3K.
Like you, I've played the game of meeting a MMF's initial min and then reducing my position. Though nowhere near $1M. FZDXX (4.47% yield) has a $100K min in taxable accounts, but by prospectus can be reduced to a $10K maintenance amount. Since I use this as my checking account (and can let the balance drop even lower), I'm willing to give up a few basis points in after-tax performance for the convenience.
In an IRA, FZDXX requires only $10K to bootstrap. I've done that, leaving just 80¢ or so in the position.
SWVXX is 4.47%
I don't see 6.2%
Another question while I have your ear. Tax info from Van Guard shows % of treasury dividend from a fund. If I take qualified & non qualified dividends & add them together times percentage, would that be the correct state exemption ?
Thank you for your time, Derf
https://www.vanguard.com/pdf/USGOIN_2023.pdf
This is how Vanguard chooses to run the fund (and AFAIK has, for years). Per prospectus, the fund is allowed to invest also in "repurchase agreements fully collateralized by U.S. Treasury securities." But it usually doesn't use repurchase agreements. This is important because "Income generated from investments in repurchase agreements with the federal reserve are generally subject to state and local income taxes."
https://investor.vanguard.com/investment-products/mutual-funds/profile/vusxx#overview
In contrast, Fidelity's Treasury (as opposed to "Treasury Only") MMF, FZFXX, currently has 85% of its portfolio invested in (state-taxable) repurchase agreements. And in 2022, only 23.6% of its income was state tax-exempt. This is doubly important; not just because of the low percentage generally, but because so little was invested in Treasuries that none of the income was state tax-exempt in NY, Calif. or Conn. (special laws in those states).
You are correct that total divs (qualified + non-qualified) x exempt percentage = state exemption (but see NY, Calif., Conn.). It is sometimes easier just to read the total div figure off of box 1a on the 1099-Div form. But if you have multiple holdings in a brokerage, you'll have to handle each fund separately (different percentages for each fund).
But skepticism regarding constant boasting, with absolutely no corroborating information? You'd better believe it.
To OJ: if the timing had been perfect, it seems we would have heard about it immediately, rather than weeks later, when the indicators finally proved out (for the moment).
It makes one wonder if these indicators (with a nod to Samuelson) have signaled nine of the last five market declines.
Box 1(a) - all divs - includes qualified divs (box (1(b)) and ...
- short term gains (for mutual funds)
- section 199A dividends (from REITs; these get a special 20% break in taxes)
- "ordinary" nonqualified divs (nonqualified divs other than STG or Sec 199A divs)
Perhaps I still shouldn't go into what "nonqualified div" means. That likely makes things more confusing. Just stick with 1(a) for each fund if you have that on your supplemental information (detail) statement for each fund.
1) 2020, going to cash on 2/29/2000(link). I actually posted here too(link)
2) In early 2022, going to cash(link).
3) In 11/2022, going back in and why (link).
4) I posted about one good indicator I have been using for years, called 3 line break. You can read about it (here). I explained some of my trades. If you look at 3 line break (link) it's very clear why I sold early in Feb. HYD,ORNAX are HY Munis.
Unfortunately, no more trades in real-time.
Have a great day, Derf
I've also started moving money out of VTAPX to a 5-year TIPS ladder, along with $25,000/year in I-bonds.
Getting back to core bond is ongoing for the next few months. The volatility reminds me of 2022.