mervinj7 wrote: ↑Tue Jul 19, 2022 12:55 pm
throw123112 wrote: ↑Mon Jul 18, 2022 9:33 pm
Given that you can get 2% on 4 week Treasuries and the expense ratios are high and yields are lower at many Fidelity money markets (especially for comparable funds that exclusively invest in Treasury bills such as FDLXX) is there a good way to use Fidelity as your main bank account but automate getting into and out of Treasuries? The main advantage of the money market funds is you don't have to think about it and they auto-liquidate to cover your expenses and bills. What is the best way to take advantage of the higher yields of Treasuries, but make your life as hassle free as possible?
That's an excellent question. I tried to think of ways of optimizing this particular situation. In the end, I decided to leave $10k in one of the Fidelity Money Market funds. Anything above that for my EF (e.g. $50k) is in Treasury bond ladders. Typically, I'm aware of any large expense larger than $10k and will manually sell a Treasury bill (if needed) before I need to pay the bill. Fortunately, I rarely have single expenses that large unless I'm buying a car or house repairs. But for those, I typically use my HELOC for short-term liquidity. This way, the vast majority of my EF is in Ibonds or 3-6 month Treasuries yielding a decent tax-equivalent yield (no CA state tax on Treasury income).
Just to clarify, here are some sample yields as of 07/19/2022. I'm including the Vanguard Money Market for comparison even though there's Cash Management Account option at Vanguard.
VUSXX (Vanguard Treasury Money Market) 7 Day SEC Yield: 1.42%
FDLXX (Fidelity Treasury Money Market) 7 Day SEC Yield: 1.11%
6 Month Treasury Bills: 3.02%
So in my simple example, if I kept $10k in FDLXX and $50k in 6 month T-bills ladders, if rates don't change then I would earn $1621/year.
If kept everything in FDLXX, then I would earn $666/year.
If there was an option to use VUSXX, then I would earn $852/year.
That's why, in the correct rate market, auto-rolling Treasury ladders are powerful tools for those with large cash EFs. Of course, throwing Ibonds into the mix complicates things further for an EF but it's worth it for me.