Which cash-like investment to choose in IB (EU) for 6-12 months?

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Topic Author
jjmaddison
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Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by jjmaddison »

A senior lives in the Netherlands, they have considerable amount of USD on their IBIE account and intend to keep it for about 6-12 months.
They don't want to buy stocks, but rather keep it as cash or something alike.

Right now IB pays 4.08% on USD.

Should they buy US Treasuries instead? I heard, they have higher yields now?
Or maybe even a short-term bonds ETF?

Short-term bonds won't suffer as FED increases the rate, but maybe longer-term bonds on the secondary market have the "rate increase" expectation in their price already?

I know a few things about bonds, but kind of lost, there're so many kinds of them.
Thank you, guys!
Laurizas
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by Laurizas »

I looked at Vanguard U.S. Treasury 0-1 Year Bond UCITS ETF (USD) Accumulating ISIN IE00BLRPPV00, WKN A2P66X and Invesco US Treasury Bond 1-3 Year UCITS ETF A ISIN IE00BF2FNG46 and they give same yield as IBKR

https://api.fundinfo.com/document/c7429 ... -01-31.pdf

https://api.fundinfo.com/document/d532d ... -01-31.pdf
Valuethinker
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by Valuethinker »

jjmaddison wrote: Wed Feb 22, 2023 2:54 pm A senior lives in the Netherlands, they have considerable amount of USD on their IBIE account and intend to keep it for about 6-12 months.
They don't want to buy stocks, but rather keep it as cash or something alike.

Right now IB pays 4.08% on USD.

Should they buy US Treasuries instead? I heard, they have higher yields now?
Or maybe even a short-term bonds ETF?

Short-term bonds won't suffer as FED increases the rate, but maybe longer-term bonds on the secondary market have the "rate increase" expectation in their price already?

I know a few things about bonds, but kind of lost, there're so many kinds of them.
Thank you, guys!
Honestly, for that time length 4.08% is good enough. Going longer on duration (a crude measure of sensitivity to interest rates) just exposes one to capital volatility ie potential for loss. Why hold bonds for a period of less than 12 months?

Is taking on capital risk worth it for 1 or 2%, pre tax return, max?

My main question is security. Is this deposit insured? To the Euro 100k limit of deposit insurance in the Eurozone?

If not, then diversification is advised:

- deposit-taking institutions up to the 100k EUR limit

- a Money Market Fund which invests only in high grade USD money market instruments

Because of the finagles that happen between Congress (of one party) and President (of another) over raising the debt limit, there is always this small risk that the US will enter into "technical default" where the US Treasury cannot honour short term debts which come due. It has never happened. It should never happen. It would be incredibly disruptive. However ...

That's my one concern with an MMF.

https://monevator.com/money-market-funds/

is full of the risks of (European) MMFs. Worth a read.
Last edited by Valuethinker on Mon Feb 27, 2023 8:32 am, edited 2 times in total.
Topic Author
jjmaddison
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by jjmaddison »

The yield for VDST appears to be a bit higher, 4.69%, no?
Laurizas wrote: Mon Feb 27, 2023 4:02 am I looked at Vanguard U.S. Treasury 0-1 Year Bond UCITS ETF (USD) Accumulating ISIN IE00BLRPPV00, WKN A2P66X and Invesco US Treasury Bond 1-3 Year UCITS ETF A ISIN IE00BF2FNG46 and they give same yield as IBKR

https://api.fundinfo.com/document/c7429 ... -01-31.pdf

https://api.fundinfo.com/document/d532d ... -01-31.pdf
Valuethinker
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by Valuethinker »

jjmaddison wrote: Mon Feb 27, 2023 5:39 am The yield for VDST appears to be a bit higher, 4.69%, no?
Laurizas wrote: Mon Feb 27, 2023 4:02 am I looked at Vanguard U.S. Treasury 0-1 Year Bond UCITS ETF (USD) Accumulating ISIN IE00BLRPPV00, WKN A2P66X and Invesco US Treasury Bond 1-3 Year UCITS ETF A ISIN IE00BF2FNG46 and they give same yield as IBKR

https://api.fundinfo.com/document/c7429 ... -01-31.pdf

https://api.fundinfo.com/document/d532d ... -01-31.pdf
Higher yield is normally bought at higher risk. The investor will be subject to volatility in capital value. Worth it for 0.61%?
Topic Author
jjmaddison
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by jjmaddison »

Did I understand correctly that, except value fluctiation (quite low for 3-month bonds), the yield is 4.69% or more"?

The prospect says "Yield to worst".
Laurizas
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by Laurizas »

jjmaddison wrote: Mon Feb 27, 2023 5:39 am The yield for VDST appears to be a bit higher, 4.69%, no?
Yep, but it is almost the same. For 1 year you will not feel a difference.
daviddem
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by daviddem »

Keeping the balance in cash at IB however exposes the heirs of the senior in question to US estate tax of up to 40% should he pass away - depending on the country of residence of the senior and the existence of a US estate tax treaty with that country.

Balances held in a bank account are not subjected to that tax. However cash balances held in a brokerage are.

The best way to remove that risk (for residents of most countries) is to invest in an Irish-based USD money market fund. The best one I found available on IB (min purchase / redemption of USD 150,000) is the Invesco US Dollar Liquidity Portfolio Institutional mutual fund: https://www.interactivebrokers.co.uk/po ... /389538961

I also looked at ultra-short bond funds, however the value of short maturity bonds still fluctuates somewhat with interest rates, so if it's for parking cash for just 6-12 months in a rising interest rate environment, one could still loose money...

Reference: read Outline of non-US domiciles and all the sublinks under "tax issues". It is quite compelling that most non-resident aliens should never invest in US-based ETF, mutual funds or stocks, but rather go for the Irish-domiciled equivalents, and should also not keep USD cash balances over 60,000 USD in a brokerage. Pay particular attention to Q9 of this link: Non-US investor's guide to navigating US tax traps

edit: since the senior in question is a resident of the Netherlands and the Netherlands has income tax and estate tax treaties with the US, it *might* be safe for the senior to hold a large cash balance at IB. However the tax rates and details of the treaties need to be combed to figure that out.
Last edited by daviddem on Fri Mar 10, 2023 8:12 am, edited 2 times in total.
Stork
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by Stork »

daviddem wrote: Fri Mar 10, 2023 7:50 am Keeping the balance in cash at IB however exposes the heirs of the senior in question to US estate tax of up to 40% should he pass away - depending on the country of residence of the senior and the existence of a US estate tax treaty with that country.

Balances held in a bank account are not subjected to that tax. However cash balances held in a brokerage are.
...
Is this also the case if the account is with an EU subsidiary? I wouldn't think so.
Lazerr
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by Lazerr »

Cash interest from IBIE counts as Ireland-source, so I think it is reasonable to assume that cash at IBIE is not subject to US estate taxes.
Topic Author
jjmaddison
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by jjmaddison »

daviddem wrote: Fri Mar 10, 2023 7:50 am The best way to remove that risk (for residents of most countries) is to invest in an Irish-based USD money market fund. The best one I found available on IB (min purchase / redemption of USD 150,000) is the Invesco US Dollar Liquidity Portfolio Institutional mutual fund: https://www.interactivebrokers.co.uk/po ... /389538961
The one with 0.15% ER, right?

Please note, we're talking about IBIE, not IBUS.
DoctorE
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by DoctorE »

I don't like the spreads and carry costs of those short term bond ETFs. It's a bit tricky to buy Treasuries at IB but it's possible.

Here's a bit of a calc I did a few weeks ago (incl 15% tax):
Image
daviddem
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by daviddem »

Lazerr wrote: Tue Mar 14, 2023 3:18 pm Cash interest from IBIE counts as Ireland-source, so I think it is reasonable to assume that cash at IBIE is not subject to US estate taxes.
Interesting. Do you have a source for this? I searched and could not find.

From this link:
Non-bank deposits, such as cash accounts in U.S. brokerage firms, are likely to be subject to U.S. estate tax
And from the IBKR knowledge base:
IBIE is a wholly-owned subsidiary that sits within the broader Interactive Brokers Group.
So I would say the question remains open since the IBKR Group is headquartered in the US.

I asked the question to IBKR support, but I guess they will reply that they are not commenting on tax issues. See below ticket I created:
Hello,

I am trying to understand whether the cash balances (USD or other currency) of non-resident aliens with a .ie or .co.uk IBKR account are potentially subject to US estate tax.

As per the attached article:

" Non-bank deposits, such as cash accounts in U.S. brokerage firms, are likely to be subject to U.S. estate tax."

Are IBKR .ie and .co.uk accounts considered as accounts in a US brokerage firm, given that the IBKR Irish and UK entities are wholly owned subsidiaries of the US-based IBKR group?

Do you have practical experience in the matter, where the cash balances of such accounts were subject to US estate tax?

Regards,
David
Last edited by daviddem on Wed Mar 15, 2023 3:09 am, edited 1 time in total.
Topic Author
jjmaddison
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by jjmaddison »

IBIE is a wholly-owned subsidiary that sits within the broader Interactive Brokers Group.
That usually means that IB Group owns IBIE.

But IBIE is in Ireland and is subject to Irish legislation.
They withhold taxes according to Irish legislation.

Probably Irish inheritance taxes will apply.

Ireland has Gift and Inheritance Tax (Capital Acquisitions Tax – CAT)
https://www.revenue.ie/en/gains-gifts-a ... index.aspx

It looks to be quite harsh on inheritance (-33%, no lower bound), is there any reason why it doesn't apply to money in IBIE?
Also, why it doesn't apply to ETFs in IBIE?

P.S. This question is covered so carefully for IBUS, must be some explanation for EU guys' IBIE too ;)
daviddem
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by daviddem »

jjmaddison wrote: Tue Mar 14, 2023 3:20 pmThe one with 0.15% ER, right?

Please note, we're talking about IBIE, not IBUS.
Yes, there are others with a 0.1% management fee but the min purchase is a LOT more. At current prevailing interest rates, it yields about 4.8% over a year (for the ACC version).

Concerning IBIE vs IBUS, see my post above.
daviddem
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by daviddem »

jjmaddison wrote: Wed Mar 15, 2023 2:56 amAlso, why it doesn't apply to ETFs in IBIE?
It does. If I purchase US-domiciled ETFs or stocks through my .co.uk account, I am liable for US withholding tax on dividends and short-term capital gains and also estate tax. I am sure it's the same for .ie accounts. That's because US-domiciled ETFs and stocks are considered US situs assets. And so are cash balances "held in a US brokerage firm". The question really is whether IBIE and IBUK are considered "a US brokerage firm", given they are wholly owned by IBUS.

You may well be right, but I am not sure.

Food for thought:
Controlled Foreign Corporation (CFC): Definition and Taxes
Last edited by daviddem on Wed Mar 15, 2023 3:39 am, edited 1 time in total.
TedSwippet
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by TedSwippet »

jjmaddison wrote: Wed Mar 15, 2023 2:56 am Also, why it doesn't apply to ETFs in IBIE?
Nonresident alien investors and Ireland domiciled ETFs - Bogleheads
From Revenue Ireland:

23.6 Exemption of certain investment entities CATCA 2003 s.75 provides an exemption from tax for gifts and inheritances of units of certain investment entities (defined in the TCA 1997, Part 27). Units held in collective investment schemes, common contractual funds, investment limited partnerships or investment undertakings are exempt from tax in cases where neither the disponer nor the donee or successor is domiciled or ordinarily resident in the State, at the date of the disposition and at the date of the gift or inheritance, respectively.
Topic Author
jjmaddison
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by jjmaddison »

Thank you!

This was only about ETFs, right?

What's with the money on IBIE brokerage account?
TedSwippet
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by TedSwippet »

jjmaddison wrote: Wed Mar 15, 2023 4:03 am What's with the money on IBIE brokerage account?
Hard to say. It may depend on where and how IBIE places customer cash deposits, and only they can tell you that.

Worst case, Ireland has a €16,750 exemption. That's pretty low -- it makes the US's own stingy $60,000 look generous by comparison -- but perhaps adequate given that a brokerage cash account is not the place to keep any long-term cash. As with a US brokerage, just don't die while rebalancing and you'd be fine.
daviddem
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by daviddem »

Valuethinker wrote: Mon Feb 27, 2023 5:29 amMy main question is security. Is this deposit insured? To the Euro 100k limit of deposit insurance in the Eurozone?
Hard to say. It may depend on where and how IBIE places customer cash deposits, and only they can tell you that.
The Client Assets Key Information Document from IBIE should answer your question.

IBUS investors can subscribe to their cash sweep program, which splits their cash into different US banks so that everything remains FDIC-insured, but not non-US clients.
Topic Author
jjmaddison
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by jjmaddison »


The Client Assets Key Information Document from IBIE should answer your question.
According to this document, IBIE has a lot of freedom in how it keeps the money, and the money is insured only up to €20.000, right?

P.S. The inheritance question is still hanging, is it?
"Just don't die" is the most favorable option for sure :sharebeer
DJN
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by DJN »

jjmaddison wrote: Wed Mar 15, 2023 2:56 am
IBIE is a wholly-owned subsidiary that sits within the broader Interactive Brokers Group.
That usually means that IB Group owns IBIE.

But IBIE is in Ireland and is subject to Irish legislation.
They withhold taxes according to Irish legislation.

Probably Irish inheritance taxes will apply.

Ireland has Gift and Inheritance Tax (Capital Acquisitions Tax – CAT)
https://www.revenue.ie/en/gains-gifts-a ... index.aspx

It looks to be quite harsh on inheritance (-33%, no lower bound), is there any reason why it doesn't apply to money in IBIE?
Also, why it doesn't apply to ETFs in IBIE?

P.S. This question is covered so carefully for IBUS, must be some explanation for EU guys' IBIE too ;)
Hi,
if you are not tax resident in Ireland you are not liable for inheritance tax.
Irish investment funds are not subject to any taxes on their income (profits) or gains arising on their underlying investments.
https://www.bogleheads.org/wiki/Nonresi ... ciled_ETFs
Property or REITS may be more difficult.
DJN
Yah shure. | Have a look at the Bogleheads Wiki in the first instance.
Lazerr
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by Lazerr »

daviddem wrote: Wed Mar 15, 2023 2:12 am
Lazerr wrote: Tue Mar 14, 2023 3:18 pm Cash interest from IBIE counts as Ireland-source, so I think it is reasonable to assume that cash at IBIE is not subject to US estate taxes.
Interesting. Do you have a source for this? I searched and could not find.
After you create an account with IBIE, they make you fill out an Irish tax form to reduce or eliminate the 20% Irish withholding on interest. This applies specifically for cash interest and is something that only started last year, when you could actually earn interest on cash.
Topic Author
jjmaddison
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by jjmaddison »

daviddem wrote: Wed Mar 15, 2023 3:17 am
jjmaddison wrote: Tue Mar 14, 2023 3:20 pmThe one with 0.15% ER, right?

Please note, we're talking about IBIE, not IBUS.
Yes, there are others with a 0.1% management fee but the min purchase is a LOT more. At current prevailing interest rates, it yields about 4.8% over a year (for the ACC version).
0.1% would be better, of course, especially if the liquidity is also good.
The senior person who asked this question has 6 digits in their numbers for this purpose, should be enough to buy, I guess.

Is there a link to see the possible options, maybe? Like etfdb?
daviddem
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by daviddem »

jjmaddison wrote: Thu Mar 16, 2023 6:41 am
0.1% would be better, of course, especially if the liquidity is also good.
The senior person who asked this question has 6 digits in their numbers for this purpose, should be enough to buy, I guess.

Is there a link to see the possible options, maybe? Like etfdb?
Log in to your IBKR account, go to Research -> Mutual Funds Scanner -> pick your country / region -> fund type "money market" and you will get a list of all the ones available on IBKR along with the fund domicile (stick to Ireland) and the management fee %. Cost me $5.95 transaction fee to purchase >150k worth of the Invesco one. Initially I looked at the Blackrock ones because that is what my company retirement plan is using, but either the min purchase was too much or the management fees were higher (depending on share class).

In case you don't have an IBKR account, I downloaded the results of the scanner in an Excel spreadsheet. I picked Netherlands for the country / region. Annoyingly IBKR does not list the ISIN of the funds, but if you search Yahoo finance for the name of the fund you should find. Or get the ISIN from the company websites.

The ISIN for the Invesco USD Liquidity Acc is IE0008005567 and here is the Yahoo finance link. You can also get fund info on the Invesco website. You can get daily NAV data there and calculate the yield yourself.
Last edited by daviddem on Thu Mar 16, 2023 12:50 pm, edited 1 time in total.
DoctorE
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by DoctorE »

daviddem wrote: Thu Mar 16, 2023 9:11 am
jjmaddison wrote: Thu Mar 16, 2023 6:41 am
0.1% would be better, of course, especially if the liquidity is also good.
The senior person who asked this question has 6 digits in their numbers for this purpose, should be enough to buy, I guess.

Is there a link to see the possible options, maybe? Like etfdb?
Log in to your IBKR account, go to Research -> Mutual Funds Scanner -> pick your country / region -> fund type "money market" and you will get a list of all the ones available on IBKR along with the fund domicile (stick to Ireland) and the management fee %. Cost me $5.95 transaction fee to purchase >150k worth of the Invesco one. Initially I looked at the Blackrock ones because that is what my company retirement plan is using, but either the min purchase was too much or the management fees were higher (depending on share class).

In case you don't have an IBKR account, I downloaded the results of the scanner in an Excel spreadsheet. I picked Netherlands for the country / region. Annoyingly IBKR does not list the ISIN of the funds, but if you search Yahoo finance for the name of the fund you should find. Or get the ISIN from the company websites.

The ISIN for the Invesco USD Liquidity Acc is IE0008005567 and here is the Yahoo finance link is. You can also get fund info on the Invesco website. You can get daily NAV data there and calculate the yield yourself.
This is a great find, thank you.
I wasn't aware mutual funds & money market funds were available via IBKR in Europe.
daviddem
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by daviddem »

DoctorE wrote: Thu Mar 16, 2023 10:45 am This is a great find, thank you.
I wasn't aware mutual funds & money market funds were available via IBKR in Europe.
Yes it took me a while to find out also. There are very few Irish-based money market ETFs and even less USD ones. Maybe MMFs are not very well suited for ETFs given they are so slow and steady. Also in this case the $5.95 per order via IBKR for a mutual fund is a lot more cost effective than the 0.05% they charge for ETF purchases.

FWIW the Invesco liquidity funds have existed since 1995 and went through 2008 and 2020 unscathed, so that's hopefully an indication that they are solid (even though past performance is not a guarantee of future results etc...)

I placed the order on Friday Mar 10 and it filled on Monday Mar 13 at the Mar 10 end-of-day NAV. I got the trade confirmation with the detailed price on Mar 14. For some reason the IBKR system initially showed a P&L of -$180 on Mar 13 but that soon corrected itself the next day and there were no hidden fees of any kind, just the $5.95 commission for the trade.
Last edited by daviddem on Fri Mar 17, 2023 2:21 am, edited 1 time in total.
DoctorE
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by DoctorE »

daviddem wrote: Thu Mar 16, 2023 12:48 pm
DoctorE wrote: Thu Mar 16, 2023 10:45 am This is a great find, thank you.
I wasn't aware mutual funds & money market funds were available via IBKR in Europe.
Yes it took me a while to find out also. There are very few Irish-based money market ETFs and even less USD ones. Maybe MMFs are not very well suited for ETFs given they are so slow and steady. Also in this case the $5.95 per order via IBKR for a mutual fund is a lot more cost effective than the 0.05% they charge for ETF purchases.

FWIW the Invesco liquidity funds have existed since 1995 and went through 2008 and 2020 unscathed, so that's hopefully an indication that they are solid (even though past performance is not a guarantee of future results etc...)

I placed the order on Friday Mar 10 and got it at the Mar 10 end-of-day NAV. The trade settled in my account on the next business day (Mar 13) and I got the trade confirmation with the detailed price on Mar 14. For some reason the IBKR system initially showed a P&L of -$180 on Mar 13 but that soon corrected itself the next day and there were no hidden fees of any kind, just the $5.95 commission for the trade.
If you don't mind sharing for others who would like to do this at IB:
What type of order did you place? Does it ask you MKT, LMT?
Which app did you use? TWS Desktop, Mobile App or Trade via Account Management web interface?
daviddem
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by daviddem »

DoctorE wrote: Thu Mar 16, 2023 6:33 pm If you don't mind sharing for others who would like to do this at IB:
What type of order did you place? Does it ask you MKT, LMT?
Which app did you use? TWS Desktop, Mobile App or Trade via Account Management web interface?
I did it through the web interface.

The NAV of mutual funds is only updated once a day at the close of the trading day, so you can only choose "market", there is no limit order. And you can only place a purchase order in USD (or the currency of the MF) and a sell order in number of shares. Just place your order during the day, and your purchase / sale price will be the end-of-day NAV (no buy/sell spread) plus the $5.95 IBKR commission. There is no way to know how much that will be exactly, that is the nature of the beast with mutual funds and can be quite annoying with stock funds, but with a slow and steady MMF that is not really an issue: you can pretty much calculate what the next NAV will be from looking at the few prior NAVs on Yahoo Finance historical data or the company website. As I said above, don't panic if you initially see a negative P&L larger than it should be, it will correct itself the next day. If you are the anxious / impatient type, don't order on a Friday as you will have to wait the whole weekend (but you will still get the Friday price, not to worry).

Caveat: for the Invesco MMF, the min purchase is USD 150k. I also checked and all subsequent purchases must also be 150k. It seems there *might* be no lower limit for redemptions though: IBKR accepted my sell order for one share, but with a message saying the "the value limit cannot be verified" - so there is still a chance that the order might eventually have been rejected by Invesco... would be too easy otherwise to work around the lower purchase limit: if you wanted to invest only 50k, you would just purchase 150k and sell 100k the next day... I did not test this because I don't want to pay the $5.95 commission to sell just the one share (I cancelled my order).

Hope this helps.

edit: for the USD Invesco fund, the Valuation Point (time at which the NAV is calculated) is 4pm New York time. For the EUR and GBP fund, it is respectively 2.30pm CET and 2pm London time. So place your orders well before these times to get the end-of-day NAV. See prospectus for all the details.

re-edit: in TWS, if you double click on the fund ticker, it shows you the cutoff time for your order to fill at end-of-day NAV. For the Invesco USD fund, it's 11:45am London time. After 11:45am, your order will fill at the next day NAV.
Last edited by daviddem on Fri Mar 17, 2023 4:15 am, edited 1 time in total.
EddyB
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by EddyB »

jjmaddison wrote: Wed Mar 15, 2023 4:32 am

The Client Assets Key Information Document from IBIE should answer your question.
According to this document, IBIE has a lot of freedom in how it keeps the money, and the money is insured only up to €20.000, right?

P.S. The inheritance question is still hanging, is it?
"Just don't die" is the most favorable option for sure :sharebeer
There’s something comical (in the painful sense) about US citizens who use IBIE filing form 8938 because of the possibility that it is “foreign,” while non-US citizens face the risk of US estate taxes because of the possibility that it’s “domestic.” Convoluted legislation really is in the government’s best interest.

viewtopic.php?t=399181
DJN
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by DJN »

Hi,
the ongoing charge is 0.15% which is not the cheapest on top of the minimums. No difficulty for a large institution where they can achieve discounts for larger scale and in any case it isn't their money.
DJN
Yah shure. | Have a look at the Bogleheads Wiki in the first instance.
daviddem
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by daviddem »

DJN wrote: Fri Mar 17, 2023 5:02 am Hi,
the ongoing charge is 0.15% which is not the cheapest on top of the minimums. No difficulty for a large institution where they can achieve discounts for larger scale and in any case it isn't their money.
DJN
I also considered the fund domicile, size, track record and yield when choosing. Which other cheaper one would you suggest?
DJN
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by DJN »

Hi,
putting MMFs to one side I use VDST, IB01 and ERNE for shorter term cash like equivalents.
DJN
Yah shure. | Have a look at the Bogleheads Wiki in the first instance.
daviddem
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by daviddem »

DJN wrote: Fri Mar 17, 2023 6:45 am Hi,
putting MMFs to one side I use VDST, IB01 and ERNE for shorter term cash like equivalents.
DJN
Yes that is an option. Marginally higher risk for marginally higher yield.

https://www.investor.gov/publications-r ... bond-funds
DoctorE
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by DoctorE »

DJN wrote: Fri Mar 17, 2023 6:45 am Hi,
putting MMFs to one side I use VDST, IB01 and ERNE for shorter term cash like equivalents.
DJN
Personally I prefer T-bills at IBKR. No management fee, liquid, cheap to buy, predictable. 0.002%/$5 min. per trade.

Safety wise the ETFs are better because they hold just treasuries. I guess there's some liquidity risk if there's some LSE issues/closure.
I don't like the bank commercial paper holdings of the Invesco: https://markets.ft.com/data/funds/tears ... 005567:USD
MMF recommended holding period is still 1 year. And duration on the ETFs is 0.5 year so not much interest rate risk there unless Central Banks go crazy with hikes.
If investing >$10,000, these start to get more expensive than the MMF but I guess that's the price to pay for safety. The fee is 0.05% at IBKR for these, so $100 round trip on $100k.
daviddem
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by daviddem »

Find below the 6 months charts of VDST (Ultrashort 0-1 year treasuries) and the Invesco MMF. I wouldn't call the Invesco one "riskier" and the 6 months yields are almost exactly the same (invesco very slightly higher actually). And see here for a good roundup of MMF and other cash-like options such as ultra-short bond funds.

Also treasury bills are not completely risk-free (and neither are MMF: I should know as I was holding some cash in The Reserve Fund in 2008):

Analysis: Looming U.S. default risk prompts investors to cut some debt exposure
What's Behind the Drop in Treasury Market Liquidity?
Money Market Mayhem: The Reserve Fund Meltdown

Image
Last edited by daviddem on Fri Mar 17, 2023 9:04 am, edited 1 time in total.
DJN
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by DJN »

Hi,
thanks for those insights.
According to IBKR faq's cash deposits at IBKR have limited protection under SIPC up to $500,000 for assets and up to $250,000 for cash ($'s) as a "sublimit" according to the IBKR UK notes. (Non US dollar cash deposits are covered only if they are for the purposes of purchasing securities). There is a further insurance in place for a substantial sum ($30m) with Lloyds of London. On the surface this is superior to your local UK high street bank.
DJN
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international001
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by international001 »

jjmaddison wrote: Wed Feb 22, 2023 2:54 pm A senior lives in the Netherlands, they have considerable amount of USD on their IBIE account and intend to keep it for about 6-12 months.
They don't want to buy stocks, but rather keep it as cash or something alike.

Right now IB pays 4.08% on USD.

Should they buy US Treasuries instead? I heard, they have higher yields now?
Or maybe even a short-term bonds ETF?

Short-term bonds won't suffer as FED increases the rate, but maybe longer-term bonds on the secondary market have the "rate increase" expectation in their price already?

I know a few things about bonds, but kind of lost, there're so many kinds of them.
Thank you, guys!
Why would you keep dollars if you have to expend it in euros? The currency risk is much higher than any bond risk
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by Valuethinker »

DJN wrote: Fri Mar 17, 2023 8:56 am Hi,
thanks for those insights.
According to IBKR faq's cash deposits at IBKR have limited protection under SIPC up to $500,000 for assets and up to $250,000 for cash ($'s) as a "sublimit" according to the IBKR UK notes. (Non US dollar cash deposits are covered only if they are for the purposes of purchasing securities). There is a further insurance in place for a substantial sum ($30m) with Lloyds of London. On the surface this is superior to your local UK high street bank.
DJN
SIPC is not the UK government bank deposit insurance scheme?

Lloyds of London (the insurance market). I imagine Wikipedia has a pretty good summary of the Lloyds of London reinsurance scandal ("Names" ie individual investors with unlimited liability, as was prevalent in the 1980s and before). The capacity of reinsurance markets is very finite, even without a whiff of scandal.

In a crisis, it won't be one institution that goes down, it will be a number together.

These deposits are not insured by a major government?

In my view, "safety" is where you have a bank deposit insured by a country which can afford to bail it out, and has a vested interest in so doing. Credit Suisse is an interesting test, because deposits to GDP ratio (just CS) is about 1 to 1. Swiss National Bank cannot buy more than 10% of the bank, so there's no easy way to inject equity. This is Switzerland and I don't worry (too much) about CS depositors being out of pocket-- although the systemic risk is quite real ie rows of dominos.

Whereas with Cyprus, and almost Greece, you had broke national governments that don't print their own currency. They cannot just fund a bailout by issuing bonds to the national bank, and using the money to pay off depositors.* OTOH I do not worry about Germany, because it is the largest fraction of the GDP of the Eurozone, has enormous powers to borrow etc.

Otherwise the investor is well advised to hold primarily a diversified portfolio of high quality government securities (short term). Which is tantamount to an insured bank account or accounts.

* you can trash your currency that way. Bank of England in effect did in 2008-09. GBP dropped c 30% against USD and EUR, from memory. In the extreme case you impose currency controls and borrow from the IMF (Iceland).
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by DJN »

Hi,
SIPC (Securities Investor Protection Corporation) is a federally mandated, non-profit, member-funded, United States government corporation created under the Securities Investor Protection Act of 1970 that mandates membership of most US-registered broker-dealers.
You have to keep your money somewhere, and UK banks are no example of fiscal rectitude! £80,000 is the limit on each insured per bank entity. Nothing like the US. By the way the deposit insurance scheme in the EU is bank funded and not government funded.
Whether the UK is in a better position than elsewhere to deal with financial crises is a moot point as related to entity choice. Debt to GDP of Czech republic is around 40%, UK debt to GDP is over 100%. I am not sure what relevance this might have with a short term bond fund choice that is AAA rated and is more or less entirely Treasuries.
DJN
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by daviddem »

international001 wrote: Fri Mar 17, 2023 10:11 am Why would you keep dollars if you have to expend it in euros? The currency risk is much higher than any bond risk
Good point, if the money will eventually have to be converted to Euros. It seems relatively likely that the US is hopefully close to the terminal interest rates it needs to tame inflation, whereas the Eurozone still has a long way to go in that regard. At the point the Feds stop hiking rates and the ECB continues, Euros will become more expensive to purchase with USD.

Nothing is for sure in this world, but that is at least a plausible scenario.
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by international001 »

daviddem wrote: Fri Mar 17, 2023 11:12 am
international001 wrote: Fri Mar 17, 2023 10:11 am Why would you keep dollars if you have to expend it in euros? The currency risk is much higher than any bond risk
Good point, if the money will eventually have to be converted to Euros. It seems relatively likely that the US is hopefully close to the terminal interest rates it needs to tame inflation, whereas the Eurozone still has a long way to go in that regard. At the point the Feds stop hiking rates and the ECB continues, Euros will become more expensive to purchase with USD.

Nothing is for sure in this world, but that is at least a plausible scenario.
Not only that. Check out all the threads about hedging bonds. You should get a euro bond or a US bond hedged in euros. And rates of both tend to be the same. If investor is conservative, it's an illusion trying to be conservative for dollars when you want to spend in euros. Bond risk is negligible, currency risk is not (higher volatility). When you invest unhedged in dollars when your local currency is euros, you typically do it by investing in stocks, not bonds.
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by daviddem »

international001 wrote: Fri Mar 17, 2023 11:43 am Not only that. Check out all the threads about hedging bonds. You should get a euro bond or a US bond hedged in euros. And rates of both tend to be the same. If investor is conservative, it's an illusion trying to be conservative for dollars when you want to spend in euros. Bond risk is negligible, currency risk is not (higher volatility). When you invest unhedged in dollars when your local currency is euros, you typically do it by investing in stocks, not bonds.
Yes but we don't know what OP's intentions are for that money. Maybe he is just waiting for an entry point to purchase a US stocks ETF or the likes. Or maybe he just has no intention of converting to Euros in the near future.

If you hedge a USD MMF or ultrashort treasury ETF to Euros, you end up with the same returns as a Euro MMF. No point. Same as converting to EUR now and purchasing a Euro MMF.
Last edited by daviddem on Sat Mar 18, 2023 12:02 pm, edited 1 time in total.
international001
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by international001 »

If you plan to save on USD to buy US stocks in 1 year, it's also stupid. Just buy the stocks now.
I thought MMF was too sort horizon. Yes, you can invest in EUR bonds, but investing in USD hedged bonds offers higher diversification, not to mention the USD high bond quality.
If he wants to save in USD because he is going to spend it in a couple of years, sure, USD bonds are a good bet.

Otherwise, I would invest in a global fund of bonds hedged to EUR like IE00BH65QK91
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by daviddem »

daviddem wrote: Fri Mar 17, 2023 11:52 am If you hedge a USD MMF or ultrashort treasury ETF to Euros, you end up with the same returns as a Euro MMF. No point. Same as converting to EUR now and purchasing a Euro MMF.
Good explanation of that here: You can't arbitrage USD yields with EUR. Here's why.
Last edited by daviddem on Sat Mar 18, 2023 12:02 pm, edited 1 time in total.
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by daviddem »

international001 wrote: Fri Mar 17, 2023 7:46 pm If you plan to save on USD to buy US stocks in 1 year, it's also stupid. Just buy the stocks now.
That is not necessarily stupid. I am in the process of purchasing dividend growth stocks for my retirement, and I have strict criteria for my entry points. I won't buy if the yield is too low, and currently it is too low so I park my excess cash in a MMF with a good yield until my entry point criteria are met.

I apply the below principle to dividend growth ETFs. I use TradingView to generate the chart. I purchased in Oct 2022, now waiting again. Basically, when the orange line (yield) crosses above the blue line (price), time to buy.

The Dividend Yield Point Metric And How It Works In Our Portfolio

Image
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by DoctorE »

daviddem wrote: Fri Mar 17, 2023 8:06 am
Also treasury bills are not completely risk-free (and neither are MMF: I should know as I was holding some cash in The Reserve Fund in 2008):
Sorry, but I have to correct you on this.

The safety profile of an MMF with commercial paper is not the same as treasury bills' risk profile.
The Reserve Fund broke the buck because of commercial paper issued by Lehman. "The fund had a $785 million allocation to short-term loans issued by Lehman Brothers." The majority of MMFs hold 'commercial paper', not treasuries. This particular Invesco fund has 25% in commercial paper issued by various banks around the world.
If one wants higher safety they need to find a 'USD treasuries only' MMF. Not sure there are any available to EU residents.
Hence the suggestion for those ETFs or individual TBILLs.
daviddem
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by daviddem »

DoctorE wrote: Sat Mar 18, 2023 5:31 am Sorry, but I have to correct you on this.

The safety profile of an MMF with commercial paper is not the same as treasury bills' risk profile.
The Reserve Fund broke the buck because of commercial paper issued by Lehman. "The fund had a $785 million allocation to short-term loans issued by Lehman Brothers." The majority of MMFs hold 'commercial paper', not treasuries. This particular Invesco fund has 25% in commercial paper issued by various banks around the world.
If one wants higher safety they need to find a 'USD treasuries only' MMF. Not sure there are any available to EU residents.
Hence the suggestion for those ETFs or individual TBILLs.
By "risk" I didn't mean only the risk of default. One should also include duration risk, volatility, interest rate sensitivity, liquidity risk. The charts I posted above clearly show that ultra-short treasuries have a higher beta than the money market fund, no better returns and higher brokerage commissions. And as the links I posted above explain, treasuries are not completely immune to a risk of default (ref Debt Ceiling Crisis) and can also exhibit liquidity issues commanding higher spreads.

There is a reason major corporations and governments use money market funds. Ultrashort term treasuries are only one asset class from a single issuer. Hardly diversified.

But if you want a ultrashort USD treasuries ETF, there are a couple out there:

Xtrackers US Treasuries Ultrashort Bond UCITS ETF 1C
Vanguard U.S. Treasury 0-1 Year Bond UCITS ETF (USD) Accumulating

And there are also Euro ones if you don't want the USD FX risk. Mind that Europe is also not immune to countries defaulting on their debt.

iShares Euro Government Bond 0-1yr UCITS ETF
Amundi ETF Govies 0-6 Months Euro Investment Grade UCITS ETF EUR (C)
Invesco Euro Cash 3 Months UCITS ETF Acc
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by international001 »

daviddem wrote: Sat Mar 18, 2023 12:34 am
international001 wrote: Fri Mar 17, 2023 7:46 pm If you plan to save on USD to buy US stocks in 1 year, it's also stupid. Just buy the stocks now.
That is not necessarily stupid. I am in the process of purchasing dividend growth stocks for my retirement, and I have strict criteria for my entry points. I won't buy if the yield is too low, and currently it is too low so I park my excess cash in a MMF with a good yield until my entry point criteria are met.

I apply the below principle to dividend growth ETFs. I use TradingView to generate the chart. I purchased in Oct 2022, now waiting again. Basically, when the orange line (yield) crosses above the blue line (price), time to buy.
WEll, I guess if you think you can time the stock market, then perhaps you could also time the currency market.
Since all research seems to indicate that's not possible, I'll stick with BH philosophy.
daviddem
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Re: Which cash-like investment to choose in IB (EU) for 6-12 months?

Post by daviddem »

international001 wrote: Sat Mar 18, 2023 6:35 pm WEll, I guess if you think you can time the stock market, then perhaps you could also time the currency market.
Since all research seems to indicate that's not possible, I'll stick with BH philosophy.
It's not really timing, it's avoiding overpaying aka "dividend growth yes, but not at any cost".

To each his own, dollar cost averaging is also a good method to hopefully get close to average prices. That principle I apply just gives me a good yield on my investments, it has served me well so far with large purchases in Mar 2020 and Oct 2022. But of course, "past performance is not a guarantee of future results" etc.

But if one has a large lump sum to invest, "just buy now" with no consideration for current valuations may not be the best advice. As Warren Buffett said: "Be greedy when others are fearful and be fearful when others are greedy" and "I have no idea whether this is the bottom, but I know a bargain when I see one".
Last edited by daviddem on Sun Mar 19, 2023 6:54 am, edited 1 time in total.
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