Howdy. New Fool here. Looking for a place to compare MMFs, as I’m about to sell a second home and looking for a place that can compare a few funds at a glance. Seems like Morningstar might be good (and they offer a free 7-day trial). But there may be other places where I can look at one screen and see several funds.
Anyplace come to mind? Thanks in advance!
Money Market funds are almost all substantially alike. So the main way to judge them is based on yield, and that almost always flows from their expense ratio. That would mean that Vanguard is among the best ones. But nowadays, buying T-bills is so easy that you may as well buy them directly and have zero expenses. That’s what I’ve been doing and the result is about 0.05 to 0.10% higher return than any MMF. T-bills also have a tax advantage in many states.
Once in a while if I see a good yield on a CD, I’ll snap some up. Last week at my broker I saw a CD yielding 5.4%, so I attempted to purchase it, I had to repeatedly reduce my quantity over and over and over again because there weren’t enough of them remaining. In the end, there was only $1k remaining. Normally I wouldn’t bother with a small amount like $1k, but since I went through the whole effort already, I bought it anyway! I have some sweet 5.5% CDs maturing in a few weeks, haven’t seen that rate in many months.
Depending on your tax situation, T-Bills might offer a prem over MM funds.
Thanks for the thoughtful reply! I’ll look into T-Bills. Good to know Vanguard has a good MMF.
Hmmm. I might wanna just check in with my tax guy, too. Thanks.
Typically, MM funds fall into two categories, taxable or tax-free, depending on what they own.
By ‘tax-free’, they mean exempt from Fed taxes or Fed AND state taxes. The latter tend to suck majorly in terms of yields and can easily be beat by owning the underlying directly.
As for taxable MM funds, most suck majorly as well, no matter how low their expenses are, just because of those expenses.
If you’re trying to park a gob of money for the short term, your after-tax yield from holding T-bills directly will almost always be higher than owing a derivative --which is what a MM fund is-- that is making bets on T-bills, commercial paper, etc.
If the MM fund is offering a better yield, it’s because they’re taking on undisclosed risks. (“There are no free lunches on wall Street.”)
I just snagged a 5.45% 3-month CD from some random bank called “M1 Bank” (via a broker, of course).
Mark,
Unless you live in a state that imposes no income tax, the current yield on the 13-week T-bill beats that CD by as much as 40 bps, never mind the risks you’re accepting. (It can be assumed that any bank that is bidding for money at above market rates is in serious trouble.)
Yes, I know it is overkill buying ALL the T-bills, but previously doing just an 8-week ladder (which wa sin place for a few years) wasn’t sufficient for me, so I added the 26-week. Then I still had holes and I wanted to lengthen the term (because I thought interest rates would drop soon) so I added the 17-week instead of the 13-week. Then I added other accounts where I wanted to remain shorter than 17-weeks, so I put the 4-week and 42-day ones in there. Finally, when I was convinced that rates would drop, I added the 52-week issue every 4 weeks. And I even bought one 2-year note (I kind of regret that one). Anyway, in the end I have all the T-bills. It’s also a form of diversification, not by issuer obviously, but by yields for different durations.
As I said above, I only buy CDs when they happen to yield higher than T-bills. That’s relatively rare. I also only buy non-callable CDs. Seems like JP Morgan Chase tries to bamboozle people with higher yielding CDs that are callable. That basically means that you are taking a tiny bit more yield in return for giving them a valuable option when interest rates change. Not worth it.
Mark,
As everyone knows, FDIC is underfunded --as is the Pension Guarantee Fund-- and a law is on the books that makes bank bail-ins legal. Thus, while the risks aren’t huge that a given bank will default on the CDs it issues, the risks aren’t zero either.
I suppose I should investigate the banks a bit more before purchasing their CDs. Today’s purchase ought to be fine, the bank (M1 Bank) has less than $1B in assets, so if they go bust, FDIC will surely have enough money to cover their insured amounts. I just looked at some other CDs I’ve purchased. Mostly small banks, one has $2.7B assets, another has $2.3B assets. It makes sense, smaller banks have to offer slightly higher rates to raise money, big banks have all sorts of ways to raise money (like a widely advertised high-yield money market rate, Goldman Sachs, for example, can offer 4.5% and get billions of deposits at that low rate, while M1 Bank has to offer 5.45% to get a few million).
Mark,
I agree. If your purchase of a CD was small and short-term, the position should be fine. But fixed-income investors need to be aware of their risks, one of which is the credit-worthiness of the issuer whose debit they are buying.
Our dear gov’t is NOT a credit-worthy issuer. We all pretend it is. But also, if the US defaults again, as it has done several times in the past, then losing some money will be the least of everyone’s problems.
But let’s assume that default is still a long way off, though, in fact, it is already happening. But we call it ‘inflation’ instead of a default. LOL
The CD you bought offered 5.45%, right? and the 17 week --at the most recent auction-- offered 5.41%. For less than half of a basis point, I wouldn’t screw around with CDs. But then, that’s me and the way I look at things.
Charlie
Yesterday’s 17-week was 5.406%. That means that this CD yields a bit more than 4 basis points higher. But size matters. I bought more than 5 times as much of that T-bill than I bought of the CD.
But in reality, I rarely bother with CDs, only very occasionally when I see a good yield. I buy (order) T-bills twice every week, and only buy CDs once every month or two. The two recent ones are anomalies that happened so close together. The CDs are more like a game to me, to eke out a tiny bit more yield for fun.
Mark,
You’re right. The yld diff between the CD you bought and the 17-wk bill is 4 bps. My bad. But the diff between the 52 wk bills you’re buying and the 13 & 17 wks is more substantial, like 25 bps. How can such a purchase be justified?
Yeah yeah. Laddering and an unwillingness to forecast interest rates. But their direction is easy to guess, and that is higher due to global de-dollarization. That’s the bet I’m willing to make. Hence, for now, I don’t mess with the 4wk or anything further out than the 17 wk.
Charlie
How do you make that bet exactly? Are you buying fixed income denominated in some other currency/currencies? Yen maybe? Certainly not Euro, they’ve got issues over there that aren’t going away anytime soon.
As the world de-dollarizes (and I’m not convinced that is happening yet) which currency do you think will take over for all those international transactions?
I still think there is a chance of lower interest rates in 52 weeks from now. One of the issues is that we haven’t seen a recession, a real recession (not a pandemic induced blip of one), in a long time. The odds are high that there will be one at some point. It may be an odd recession though, it’s possible that due to high government spending, it’ll be the kind of recession that only affects certain sectors. Heck, it might not even be an official recession because it’s hard to “overcome” (“undercome”?) so much excess spending (>$1T a year) that will be continuous for years. It’ll be interesting to see businesses fail when their costs go up above the threshold that customers are willing to pay, but meanwhile construction, especially of government funded stuff, goes gangbusters. So fast food might close 1000 outlets, but electrical installation businesses will be growing by double digits. Nail salons will close, but architecture firms will flourish. Car dealers will close down, but heavy construction equipment will have months or years long backlogs of orders. It’ll be interesting. I think it’ll all depend on the consumer, as long as they are willing to overspend on stuff (like the aforementioned coffee for $6.47) things will keep humming on the consumer side (the biggest side). But once prices break through that invisible wall of resistance, watch out below. The coffee chain that pays employees $20+/hr, and has seen their insurance double, and their taxes go up by 30%, and their supples go up by 35%, and assorted other expenses rise, will have a hard time dropping prices enough, or fast enough, to keep everything going smoothly. If consumers resist, watch out below. A very popular coffee chain has had BOGO and 50% off deals in their app repeatedly the last few weeks. Maybe they’re already feeling the pinch?
So back to interest rates. If we do indeed see some sort of recession, it is entirely possible that rates do drop a bit. Now, I doubt we will see near-zero rates again in my lifetime, but we might see 4s instead of 5s, and maybe even high 3s if it’s deep enough.
I am 100% confident that if there was even a hint of failure of the FDIC, the US govt would come in to back stop it.
The last thing the government would want would be a total run on all banks due to the failure of FDIC. Note, even during the financial crisis of 2008 and all the bank failures that followed, FDIC survived.
Talking about “bets”, I just checked the fedwatch tool and there is still an 85+% probability of lower rates by December of this year. Remember, these are REAL bets with REAL money on some sort of futures exchange.
Hey, does anyone know the volume of actual money behind the fedwatch trading? Based on recent volumes and the odd price per contract of $4,167, it appears like it could easily be many billions or even tens of billions!
Mark,
The $US dollar’s role as a settlement currency is being increased diminished, as is its role as a reserve currency. There are plenty of analysts tracking and documenting this.
Charlie
Sure, but which currency/currencies are being used instead? I suppose since those currencies are on the rise, and the dollar is diminishing, that you would prefer buying fixed income instruments denominated in those currencies instead of those denominated in dollars? Or am I misunderstanding your comments about the dollar?
Sure, at a rate of about 1% per year. Certainly not a reason to panic or otherwise invest differently today.