Great explainer. Thinking/writing about these strategies myself, I landed on splitting cash between a HYSA and a Treasury money market fund (VUSXX). This keeps 1-2 month’s cash entirely liquid while letting the rest get the higher yield (and tax exemptions) of an MMF, which as you said, makes a difference longer-term.
I’ve noticed most writers go through pains to specify that MMFs can and have lost money, however, this has only happened *twice*, the losses were only ~3 or 4% of principal, and each time policies have anyways evolved to make them even safer. MMFs are obligated to pay out excess cash flow as dividends, whereas HYSAs can set their rate however they want. MMFs are also SIPC insured; is it really that much more likely for Vanguard to fail than, say, Ally or Chase? (All the same disclaimers apply, I am not offering individual financial advice).
One more active cash strategy I would add is to use CDs to lock in better rates before easing cycles! Rate hikes/cuts are usually broadcast at least a few weeks in advance and falling interest rates and leave CDs with a nice premium.
Love this! For short-term cash savings, I like the Fidelity Cash Management Account, since the money is held in SPAXX by default and automatically sells it for you when you withdrawal!
I’d give an honorable mention to muni funds. Living in California, my Cal Muni fund currently pays over 3%, tax free.
That's a great addition, particularly for those in high income tax states, if you invest in a fund within that state. Thanks for sharing.
Why haven’t I done this math before 🤦🏻♂️ so obvious now
Great explainer. Thinking/writing about these strategies myself, I landed on splitting cash between a HYSA and a Treasury money market fund (VUSXX). This keeps 1-2 month’s cash entirely liquid while letting the rest get the higher yield (and tax exemptions) of an MMF, which as you said, makes a difference longer-term.
I’ve noticed most writers go through pains to specify that MMFs can and have lost money, however, this has only happened *twice*, the losses were only ~3 or 4% of principal, and each time policies have anyways evolved to make them even safer. MMFs are obligated to pay out excess cash flow as dividends, whereas HYSAs can set their rate however they want. MMFs are also SIPC insured; is it really that much more likely for Vanguard to fail than, say, Ally or Chase? (All the same disclaimers apply, I am not offering individual financial advice).
One more active cash strategy I would add is to use CDs to lock in better rates before easing cycles! Rate hikes/cuts are usually broadcast at least a few weeks in advance and falling interest rates and leave CDs with a nice premium.
Love this! For short-term cash savings, I like the Fidelity Cash Management Account, since the money is held in SPAXX by default and automatically sells it for you when you withdrawal!
Absolutely. How are you liking Marcus so far?