”The dash for cash on Wall Street is back on. Investors have added about $135 billion to global money-market funds over the past four weeks … through Jan. 18. That is the best stretch since the four-week period ended May 2020, when those funds logged roughly $175 billion in net inflows …
“Increased cash allocations are the latest sign of caution among investors who are questioning whether the recent rebound in stocks and bonds will continue … The average return on U.S. money-market funds this month is 4.12%, the highest yield since the 2008 financial crisis … The S&P 500, on the other hand, has a dividend yield of about 1.6%.” “
By the end of December, assets sitting in money-market funds hit a record $5.18 trillion … That surpassed the previous high of $5.16 trillion from May 2020 … In December, individual investors slightly lowered the share of cash in their portfolios to about 21.8%, below the historical average of roughly 22.5% … The reading still marks one of the highest levels since May 2020. In comparison, stock and stock fund allocations are at about 63.9%, above the historical average of around 61.5%.”
Excerpted from:
The Wall Street Journal (Print Edition) January 26, 2023 (Narrative edited for brevity. Attribution to data sources omitted for brevity).
You’ll likely need a WSJ subscription to access
story online.
Comments
I also read a story that banks are losing deposits because bank accounts (savings, online savings, m-mkt accounts) haven't kept up with rising rates. But banks don't care as their lending business has been slow too and the Fed pays them 4.4% to park their reserves at the Fed.
Edit/Add: LINK1 LINK2
The legacy savings owners are not informed about the newer options. This has been in the news for Capital One and other banks. A while back, I called Capital One to complain, and the Rep suggested to just open a new 360 Performance Savings and transfer money - that is what I did. As the Bank is linked default for some transfers I make, I keep a variable amount depending on the current deals.
Taxable a/c: SPAXX (Gov M-mkt), FZFXX (Treasury M-mkt), FCASH (brokerage cash)
Tax-Deferred: SPAXX, FDIC banks
SPAXX is default that can be changed.
Fido is also unique in that for purchases, it will tap, sequentially, all Fido m-mkt a/c, core/settlement first, then other Fido m-mkt funds.
https://www.fidelity.com/trading/faqs-about-account
Vanguard won't do that. It will tap ONLY the core/settlement VMFXX (Gov M-mkt). Money must be transferred timely into VMFXX to settle trades.
Schwab doesn't offer ANY m-mkt funds as core/settlement. Money must be transferred timely into brokerage cash to settle trades.
Today's (1-31-2023) yield rates are:
FZDXX = 4.29%
FDRXX =3.99%
SPAXX = 3.96%
With the above, at April, 2022; FDRXX and SPAXX had yields of about .1%, FZDXX was about .22%. Through 2022, FZDXX yield moved higher, too, but at a much quicker rate. In December, this rate flattened, while the other two continued to play catch up and continue to rise now.
As you are aware, when logged in to your Fido acct., you may select positions, which will list all accts. Then select 'Dividend View'. This will provide the list of holdings with a 'yield column' which provides the 'yield' for all investments. EX: one of our current holdings for the healthcare etf, FHLC indicates a yield of 1.33%; as well as all other holdings including the MMKT's.
As @Mark wrote, the 2 MMKT's are cash core accounts for in/out monies parking when not invested in funds. These two are common with either a taxable, T-IRA or Roth accts.
FZDXX is a MMKT fund, but must be purchased as any other fund.
In 2022 FZDXX was the first to have a rapid rise in yield.
SPAXX is 75% Repos. I am looking for the statement from Fidelity about this but it is hard to find
Info on % US Gov Obligations is pending - says early-Feb. This is the portion exempt from state/local taxes.
Date 1 Mo, 2 Mo, 3 Mo, 4 Mo, 6 Mo, 1 Yr, 2 Yr, 3 Yr, 5 Yr, 7 Yr, 10 Yr, 20 Yr, 30 Yr
01/31/2023 4.58, 4.64, 4.70, 4.74, 4.80, 4.68, 4.21, 3.90, 3.63, 3.59, 3.52, 3.78, 3.65
02/01/2023 4.59, 4.63, 4.66, 4.77, 4.79, 4.66, 4.09, 3.75, 3.48, 3.43, 3.39, 3.67, 3.55
https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value=2023
So, if one perhaps is doing the Treasury (bill, note) thing or CD's at the brokerages; an assumption would be decent yields if 1 year of less, yes? On the other hand, with the longer duration; one should be having benefit of profit from pricing. At least that is the case for today after 2:30pm.
We'll discover soon enough how long is the 'happy hour' period.
https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/taxes/2021-gse-letter.pdf
Aside from repos, other holdings that one finds in government MMFs that are not state tax-exempt include debt of some agencies: FHLMC, FNMA, GNMA.
https://www.rbcwm-usa.com/resources/file-687493.pdf
Also, the percentage of income derived from an asset class ≠ the asset class' percentage of portfolio
This is because different securities have different yields.
Three states, California, New York, and Connecticut require the percentage of state tax-exempt assets (not income) in each quarter to be at least 50%, or none of the income is exempt.
https://personal.vanguard.com/pdf/USGOIN_01_2022.pdf (see footnote ** on p. 2)
The difference between percentage of income and percentage of assets may explain why in 2020, 57% of the income from FDRXX was state tax-exempt, but still the fund failed to meet the 50% asset threshold.
https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/taxes/2020-gse-letter-sai-funds.pdf
Regarding FCASH, this is covered by SIPC insurance, so long as the cash is temporary - there awaiting investment (cf. Robinhood). The MMFs are securities, not cash.
A side note on cash-ish yield: FWIW, we're a month into 2023 and RPHIX is still chugging along ahead of Treasuries and MMFs. Its January total return is 0.47%, or 5.79% annualized.
https://mutualfundobserver.com/discuss/discussion/60495/riverpark-short-term-high-yield-divs-and-availability#latest
There are also speculations on Twitter that Powell didn't seem to fully recover from his recent Covid infection - although it was noted that the FOMC Statement removed Covid as an economic risk. Powell started the presser hawkish but ended as dovish.
Thanks for all the detail. Treasury Bills are clearly the most tax efficient for state taxes, but not quite as liquid as MMF, although it is close especially for Schwab accounts that do not have sweep features
I found an ancient document on The MA taxing authority website that says for example Tennessee Valley Authority and Federal Farm credit Bank bonds are tax exempt, but GMNA is not
Rather bizarre
Pg 11, "Tax-Exempt Interest
Interest on a bond used to finance government
operations generally is not taxable if the bond is
issued by a state, the District of Columbia, a
U.S. possession, or any of their political subdivisions. Political subdivisions include:
• Port authorities,
• Toll road commissions,
• Utility services authorities,
• Community redevelopment agencies, and
• Qualified volunteer fire departments (for
certain obligations issued after 1980).
There are other requirements for tax-exempt
bonds. Contact the issuing state or local government agency or see sections 103 and 141
through 150 of the Internal Revenue Code and
the related regulations.
Obligations that are not bonds. Interest on a state or local government
obligation may be tax exempt even if
the obligation is not a bond. For example, interest on a debt evidenced only by an ordinary
written agreement of purchase and sale may be
tax exempt. Also, interest paid by an insurer on
default by the state or political subdivision may
be tax exempt."
YBB: States can limit deductibility of interest from FUNDS by requiring min % in US Gov or muni. This doesn't apply to directly held bonds.
Bonds guaranteed by the US Gov are TAXABLE - because those aren't direct US obligations. FNMA, GNMA, etc are in this category.
Pg 11-12, "Taxable Interest
Interest on some state or local obligations is
taxable.
Federally guaranteed bonds. Interest on federally guaranteed state or local obligations issued after 1983 generally is taxable. This rule
does not apply to interest on obligations guaranteed by the following U.S. government agencies.
• Bonneville Power Authority (if the guarantee was under the Northwest Power Act as
in effect on July 18, 1984).
• Department of Veterans Affairs.
• Federal home loan banks. (The guarantee
must be made after July 30, 2008, in connection with the original bond issue during
the period beginning on July 30, 2008, and
ending on December 31, 2010 (or a renewal or extension of a guarantee so
made) and the bank must meet safety and
soundness requirements.)
• Federal Home Loan Mortgage Corporation.
• Federal Housing Administration.
• Federal National Mortgage Association.
• Government National Mortgage Corporation.
• Resolution Funding Corporation.
• Student Loan Marketing Association"
You noted previous in this thread regarding Capital One CD offers. I was contacted by an in-law today about the Capital One, 5% APY, 11 month CD, "360 Performance Saving", on line offer. Is there anything, hidden in the fine print, for a new customer as to having to maintain an account, if they choose to take the monies from the CD after it matures? I ask, as I've seen offers requiring to maintain an account with bill pay and such.
You mentioned: FWIW, I have Capital One a/c. But what I don't like is that it keeps coming up with new a/c with higher yields ("360 Performance Saving" is the latest) and leaves legacy savings at low levels (they exist but not even shown on the website).
Thank you,
Catch
I only have 360 Performance Savings that is offering 3.40% (low; the best national rate is much higher). This a/c is linked for some bank transfers I do, so I keep just enough for that purpose.
My irritation has been that its promos are geared towards new a/c.
https://www.capitalone.com/bank/cds/online-cds/