”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.”
*** 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.

I find very little that I am comfortable with, at present, for a long term buy and hold investment. As a result, I have become more of a reluctant trader, focusing on bond oef categories that are doing well overall, that I think will last at least 3 months, and hopefully longer. I have been using several nontraditional bond oefs for trades--some more risky than others. Recently, I have chosen to open up positions in FR/BL bond oefs, as inflationary issues seem to be growing in frequency. FR/BL do well when interest rates stay flat, or increase, and over the past year FR/BL have been doing well. Nonagency mortgages were outstanding fund choices for much of the last decade, but they can be risky and many of them did not do well in the black swan crash in March 2020, but starting in April of 2020, they have been outstanding rebound investments, and now are settling back into a performance pattern, resembling the last decade--as a result I use funds like SEMMX as a short term aggressive trade choice, but don't trust it for too large of a position. I have short term trade positions in HY Munis, but in general I do not find HY Munis as a category I can trust for long term--when it comes to the fall, around September/October, HY Munis often get clobbered because of seasonal pressures. With HY Munis, I got clobbered early after the March 2020 crash, and so I limit how much I will put into this category, and ususally with a time limited criteria in mind. For my more conservative taxable account, I will use a fund like RPHIX because of its long term performance record, in good and bad markets, but do not use it as a trade vehicle because of fees--RPHIX/RPHYX is scheduled to close to new investors, but apparently stay open to current investors. Another fund I use in my taxable account is the very aggressive short term bond oef, DHEAX. I sold it during the March crash, but bought it back later in 2020, and have held it since. It is risky, and the DHEAX management will not permit frequent trading, so when I own it, I plan on holding it for at least 3 to 6 months--but I will sell it after that time period if market conditions merit that.

Hi @hank
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

Think of traditional bank accounts. There's a checking account where you can write checks, pay bills, buy things. And there are savings accounts that pay higher interest.
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.

Oh, I am thinking I would fault them a bit. They know how their star system is used, and when it lacks nuance and context to this extent, and when star changes seem capricious, what's a consumer to do? (As an instructions writer, I know the answer: read deeper, read harder, RTFM. So why have stars in the first place? CU does a better job.)
This is just a remarkable, damning summary, which I repost for emphasis:
... reclassified VPMCX as large cap blend. It had been classified large cap growth even though its portfolio had been in the blend column since 2018.
Its performance looked very poor compared with its "peers": 50th percentile (2018), 84th percentile (2019), 94th percentile (2020). (Though in 2021, with value ascending, it looked great - somewhere in the top 5%).
As a result of its long term "poor" performance, it had been rated 2 or 3 stars earlier this year. But with the reclassification, it's suddenly a five star fund. Nothing has changed.

A visual video graph of the shift from growth to value 2020-2021

M* on the growth of Value that’s been happening since Sep 2020.
https://www.morningstar.com/articles/1039812/value-funds-strike-back
The death of the growth vs value debate?:
https://www.ft.com/content/cb16a4d0-dfcc-4ae1-ad97-a962f24640d6
Fund managers see more rotation into Value
https://www.reuters.com/business/fund-managers-see-value-cyclical-stocks-running-further-despite-slow-us-jobs-2021-05-07/
Previous skeptics predict Value has further to go.
https://www.bloomberg.com/news/articles/2021-05-11/value-investing-is-a-winner-from-the-tech-wreck-on-wall-street

M* recently reclassified VPMCX as large cap blend. It had been classified large cap growth even though its portfolio had been in the blend column since 2018.
Its performance looked very poor compared with its "peers": 50th percentile (2018), 84th percentile (2019), 94th percentile (2020). (Though in 2021, with value ascending, it looked great - somewhere in the top 5%).
As a result of its long term "poor" performance, it had been rated 2 or 3 stars earlier this year. But with the reclassification, it's suddenly a five star fund. Nothing has changed. Its half brother POGRX is a bit more growthy, so M* has left it in the LCG category. As a result, that fund sports a 2 star rating.
An example how even unintentional drift affects star ratings is FSMAX. It tracks the S&P 500 completion index. M* writes: "This has been one of the strongest performers in the mid-cap blend category over the trailing 10 years through July 2020." But it has been on the blend/growth boundary since at least 2017, and M* recently reclassified it as growth. So this perennially strong performer is now rated 2 stars.
I'm not faulting M* here. Funds that do not sit near the center of a style "box" have a good chance of being over- or under-rated. This will happen regardless of what box they're dropped into.

hank: "I hope that better quality, longer duration bonds continue to suck air. Because if they begin to perform well in a meaningful way it means that other, riskier, markets (including junk bonds) are in a heap of trouble."
Depends on what kind of investor you are. Equity oriented investors, tend to only think of bonds as "ballast" instruments, focusing on treasuries and investment grade options. Bond oriented investors, are aware that there are a wide variety of bond oefs, that perform differently in different environments. Funds like PIMIX and DBLTX were birthed in the ashes of the 2008 crash, purchased nonagency mortgages that were out of favor, and over the following decade of equity bull market performance, those junky bond oefs became hugely popular, replacing CDs for income flow, and making great total return, without the volatility of equities.
I am not a great trader, but I have found that bond oefs move slowly enough that I can establish sell points for bond oefs, and easily switch to other bond oefs, in other categories, and still make a nice, lower stress, total return result. I did that in March 2020, when I sold my junkier bond oefs (with a small loss after hitting my sell point criteria), replaced them with some safe harbor bond oefs like GIBLX and BIMIX, and then when those junky bond oefs were once again performing well, I was able to switch back into funds like DHEAX and SEMMX, and make a nice total return. I am beyond my youthful days of heavy equity oriented investing, but have found my bond oef stage in retirement, provides a very nice total return result, allowing me to preserve what I have accumulated, and still grow the principal each year, even with the required RMD harvesting.
I am 73 years old, in retirement, with no company pensions to provide me a safety net. My preservation of principal objectives, with modest total return, fits my current investing objectives and needs. I am quite content making 4% to 6% annual total return, with minimal volatility and stress, using bond oefs.

This added efficiency should be true for most ETFs, except for Vanguard's, which for complicated reasons I'm too tired to explain aren't more efficient than Vanguard's index mutual funds as they are actually another share class of those funds.
IMHO this perspective is backward. This added efficiency is true for Vanguard ETFs as well - so far they have been able to dump all gains onto APs. As a result, it is not that Vanguard's ETFs are less efficient than those of other families, but that Vanguard's OEF share classes are more efficient than mutual funds of other families.

Most of Vanguard's ETFs were created as a new share class of an existing mutual fund.
Former Vanguard CIO Gus Sauter even patented (expires 2023) this innovative solution.
This solution increases the tax efficiency for associated mutual funds.
Dan Wiener from "The Independent Advisor for Vanguard Investors" compared the after-tax returns of Vanguard ETFs with their corresponding mutual funds.
Some ETFs had a small advantage of several bps but the same was true for some mutual funds.
There also were ETFs and mutual funds which generated identical after-tax returns.
The following Bloomberg article from 2019 discusses Vanguard's mutual fund taxation in more detail.
Link
Here's Barry Ritholtz's take.
Link

This added efficiency should be true for most ETFs, except for Vanguard's, which for complicated reasons I'm too tired to explain aren't more efficient than Vanguard's index mutual funds as they are actually another share class of those funds.
IMHO this perspective is backward. This added efficiency is true for Vanguard ETFs as well - so far they have been able to dump all gains onto APs. As a result, it is not that Vanguard's ETFs are less efficient than those of other families, but that Vanguard's OEF share classes are more efficient than mutual funds of other families.

https://www.google.com/amp/s/seekingalpha.com/amp/article/4432955-qyld-covered-call-etf-11-9-percent-yield
QYLD: Covered Call ETF - 11.9% Yield
Jun. 3, 2021 4:36 PMGlobal X Funds - Global X NASDAQ 100 Covered Call ETF (QYLD)QQQ, SPY
Summary
Covered call funds provide investors with strong yields and outperformance during flat markets, at the expense of lower capital gains and long-term returns.
QYLD is a covered call ETF tracking the Nasdaq 100 index.
11.9% yield, what can go wrong?

@Tarwheel

The only advantage of ETFs in these cases would be the potential ability to get better prices for sales or buys during the day rather than end-of-day prices.

The other advantage of ETFs is portability. You can trade those ETFs cheaply or for free pretty much anywhere. Those zero-fee Fidelity index mutual funds only trade free at Fidelity, and I think actually are only sold at Fidelity, so you really can't do anything with them anywhere but Fidelity. They are essentially locking you in as a customer for life.
Another advantage, although this is debated somewhat, is tax efficiency. The in-kind redemption system via authorized participants gets appreciated stock out of the ETF without realizing any taxable capital gains inside the portfolio that have to be distributed to shareholders. This added efficiency should be true for most ETFs, except for Vanguard's, which for complicated reasons I'm too tired to explain aren't more efficient than Vanguard's index mutual funds as they are actually another share class of those funds.

Good question. I’m not seeing anything near term. I prefer to call those “spec plays” anyway. As to “tactical” plays, I scale in or out slowly over months or years. So it’s a matter of portfolio weight or emphasis. I’ve lightened up a bit on the commodities / NR area just because it’s done so well. I’ll continue to lighten up there in “smigits”, but like the area too well to abandon it. BTW, I’ve plugged in PRELX as an (unlikely) substitute inside my real assets sleeve. And it’s beginning to move. A less dicey play on inflation than pure commodities.
I’m looking at what to add at Fido when I have some money there. Kinda like their utilities fund, FSUTX, which would replace some of my commodities exposure. Last evening I went back and re-read David Geroux’s December 2020 Fund Report for PRWCX. In it he makes a compelling case for utilities (which constituted 10% of his holdings at the time). I’m more convinced after reading that than ever. A real long-shot is Fido’s less than 2 year old Infrastructure fund FNSTX. At only 50 mil AUM, should it pop - you’d make out like a bandit. It’s mostly outside the U.S. Heavily in Italy and Spain for reasons unclear. (Maybe they like olives & wine?) However, that’s a pretty far-fetched gamble. It could just as easily go the other way.

Would it be an over simplification to say that you own bond funds if you are afraid that you might panic and sell if there is an equity crash? Is that the primary reason? The market watch article says you own bond funds for safety and not return.
Ignoring the definition of a bond fund for the moment… as PRWCX (an AA fund with a LOT of equities) and HY (junk) bonds are not the same as an FXNAX. Those that held mostly or a large percentage of bond funds in their portfolio in Feb or March 2020 were probably very happy. How did they feel at the end of 2020 when measuring their bond returns vs equities or the S&P Index?

My investment style broke several myths because I don't follow simple rules and indexes.
Myth1: own bonds for ballast, it's about 10 years now that I own bond funds for performance too, starting with PIMIX in 2011.
Myth2: there is no free lunch. I had a free lunch for over 20 years. Anytime a portfolio Sharpe is higher than the index, it's usually free lunch. PRWCX performance since 2000 shows that it made more money than the SP500 with lower volatility. PIMIX in its glory days (2011-2017) made more money with lower SD than many allocation funds 30-40% in stocks.
Myth3: Momentum and trading don't work. It worked for me.

In terms of general tax efficiency, it's like any other short term bond fund - the divs are ordinary income and share price fluctuates mildly.
My approach to handling cost basis with short term bond funds is:

• Send divs to a MMF or bank account (do not reinvest) - to avoid creating a monthly small lot nightmare
• Set the account to use specific lot identification - for full control, to optimize recognition of cap gains
• Sell as needed in mid size blocks and use MMF or bank as buffer - to avoid a nearly daily stream of tiny transactions; identify lots appropriate for your cap gains objective
• Purchase in larger blocks - simplifies identifying lots when selling

P.S. I haven't seen you posting in years. Welcome back.

Would it be an over simplification to say that you own bond funds if you are afraid that you might panic and sell if there is an equity crash? Is that the primary reason? The market watch article says you own bond funds for safety and not return.
Ignoring the definition of a bond fund for the moment… as PRWCX (an AA fund with a LOT of equities) and HY (junk) bonds are not the same as an FXNAX. Those that held mostly or a large percentage of bond funds in their portfolio in Feb or March 2020 were probably very happy. How did they feel at the end of 2020 when measuring their bond returns vs equities or the S&P Index?
I admit I don’t know enough about bonds and that was the purpose of this post. I read with interest FD’s take: “ Many retirees I know who have enough, including me, don't care as much about performance as they care about volatility.”… Here is my ignorant question… Wouldn’t the superior performance or returns from equities vs. bonds over 2-3 years far outweigh the “safety” and less volatility from bonds? Caveat: If one is relying on living only on their portfolio gains or returns and do not wish to touch the principal from their investments… I can clearly see the need for ballast and low volatility. However, if you can weather a “crash”…and recovery as has always been the case- why wouldn’t you just stay invested in equities? The longest collapse in history was 1929 and lasted 2.8 years. The 2007 recession lasted 1.3 years. I suppose I am obsessed with performance but perhaps there will come a day when I’m not and it will be all about preservation. In full disclosure, I own 2 bond funds and some AA. The bond funds are PONAX and FXNAX but are a very small portion of port.
Note: Coincidently, I wrote this before seeing FD’s post on selling when market crashes and @hank funny response. Thanks @Crash - yes I meant PRWCX -corrected

Here’s a good article that looks into this topic: https://humbledollar.com/2020/06/farewell-yield/
From the article:” That brings me to an idea advanced in 1989 by the late Peter Bernstein. Instead of the classic balanced portfolio with 60% stocks and 40% bonds, perhaps investors should opt for 75% stocks, with the other 25% in cash investments like money market funds and high-yield savings accounts. Bernstein found that the latter investment mix had a similar risk level to the classic balanced portfolio, but higher returns.”

Except today high yield savings is hardly yielding anything significant either unless the yield is coming from investments of lower grade or banks of having shaky balance sheets. But as long as there is FDIC to back it up, you can keep a portion of cash there.

“Online brokerage Robinhood touts its willingness to lend money to customers so they can multiply their returns just like Wall Street pros, even likening investing with borrowed money to the thrill of riding a motorcycle. What the company doesn't say is that its lending strategy has put clients — who tend to be younger and less experienced at playing the market — in financial peril even before many piled into the shares of struggling video game retailer GameStop in January.
“Robinhood's lending so customers could "buy on margin" — in which someone takes out a loan to buy stock, options or other securities — more than doubled in the first six months of 2020, all too often with negative results. Regulatory filings reviewed by CBS MoneyWatch show that investors who borrowed money from Robinhood were nearly 14 times more likely to be unable to repay the loans than investors who borrowed from rival brokerages eTrade, TD Ameritrade and others.”
(Sorry / Article a bit dated.(References 2020) Likely, more relevant today than then)
Story

Things in bond-land suck, these days. I'm hoping for just a 3% yield, lately
Then you're pretty much stuck with junk or an equity kicker. Otherwise you get that 3% yield at the expense of capital. That is, IG bond funds w/o equity get their yield by going long and losing value as rates rise.
This is what I've been able to find in terms of IG bond funds available to retail investors with a trailing 12 mo yield of at least 3%. Once one discards funds with significant equity states (allocation funds, target date funds), most of what's left are intermediate to long term funds with negative total return YTD.
Allocation 15%-30%: BLADX
Allocation (higher): NADCX (30%-50%), NADMX (50% - 70%), NDMAX (70%-85%), NDAAX (85%+)
Convertibles: SBFCX
Corporate: BYMIX, SIGYX
EM local currency: PYELX
HY muni: ETHYX (has IG portfolio)
Core bond: DUTMX (taxable munis), VKMGX
Core plus: AKGAX, MGBIX, CUGZX, FBDAX, PICYX, IICIX
Intermediate Gov: BTTRX (2025 zeros)
Long bond: DEEAX, RPLCX, VBLAX, VLTCX (corp.), VWESX
Muni long: VWALX, GUTEX
Short gov: IPFIX
Short bond: ANFLX, CSTBX, THOPX
Target date: NWHAX (2025), NWLAX (2035), NWMAX (2040), NWNAX (2045), NTDAX (2055), NWWRX (2060+)
World allocation: TEZIX
World bond: MPIFX
World bond, hedged: GBUSX, FGBFX

“Publicly traded companies are selling bonds that can convert into stock at a record pace this year, with nearly a third of those issuers paying nothing in interest, as they seek to take advantage of low rates and investors’ ravenous appetite for fast-growing firms.
So far this year, 97 U.S.-listed companies have issued $54.3 billion worth of convertible bonds, according to Dealogic, a data provider. That is the highest year-to-date volume ever—and 11% more than the amount raised at this point in 2020, which was a record-setting year for convertible-debt issuance.Bankers and advisers say the pace of issuance has been swift as inflation fears and the potential for rising interest rates have come to the front of many investors’ minds.
The terms have been so good for companies selling convertible debt that 28 of them are paying no interest on the bonds, the highest number since 2001. The average interest coupon on convertible debt in 2021 is 1.41%, the lowest on record. On average, this year’s crop of issuers will only need to convert bonds into stock if their share price rises 39% typically within a five-year period, the highest so-called conversion premium since 2003, according to Dealogic.”
WSJ Saturday, May 29, 2021