I'm 3-month laddering $300K @ $100K/month and today got 5.35% on secondary market zero coupon treasuries. I login and make the purchase once a month. This is basically practice for the day I ever acquire a great deal of cash from RMD, routine sale or rebalancing. It has been a nice exercise to figure out how this works as there is a certain amount of nuance that I don't get by just looking at it and not trading.
I'm OK with the hassle of logging in once a month to maintain the ladder and I like the ability to choose the expire date based on the yield differences rather than putting this on autopilot. It also gives me a chance to pull the plug on this method when rates drop precipitously at which point I will DCA into SPY-equivalent.
That said, I was a day early and decided to try buying the next 3-month rung on margin and paying 1 day margin. I called the rep and asked what the rate was. It is not published until you actually borrow the money (in this case it is Merrill Edge). He went through the process and let me know it has two rates, a base rate and a markup, today it was 5.436% with markup 7.25% so 12.686%. Effectively borrowed $98.xK one day margin or 1/365th of 12.686% or about $35. My yield on the zero coupon is near $15 so I'm paying $20/day margin for the privilege of not waiting for expiration day.
The cool thing is I now have budgetary numbers in my head, something I did not have before I made this margin buy and phone call to the broker at Merrill Edge. Margin on $100K ladder rung is about $20/day at today's rate. Since my time is highly valued the $20/day is cheap for my imagined budget in my brain. I had no clue, it could have been $5 or it could have been $50, I just had no idea. From that standpoint I am very satisfied with this exercise.
What is the significance of this and why am I taking the time to write this up you may ask? I am sure there are FI people out there who have no idea about the secondary zero coupon market and how it works. I believe the only way to learn this stuff is by actually digging in and doing it. Some might say, "Oh, you just do this or that, it's quite simple" which neglects the fact that many of us FI people got to become FI by studying, observing, listening and VERIFYING our investment and savings methods. Those that don't just use a full service like Edward Jones, pay the fees and are satisfied with their sales rep, all the power in the world to them. I am a disciple of Bob Brinker who highly respects John Bogle and Vanguard but the methods are all similar (diversification, hyper-minimize expense ratios, stay away from annuities, etc.) and I also have an MBA in applied econometrics (math) so the numbers are my comfort zone.
I had no idea that a zero coupon secondary market existed, let alone how it worked. I only heard buzzwords about Treasury Direct which seemed like a hassle to open another account. I only have the Merrill Edge account because of a promotion 7 years ago where they were giving away free money for depositing assets. I don't remember the numbers but it was something like $700 for a $100K deposit, no strings attached. I am a sucker for free money so I transfered some ESPP/RSU shares from my previous employer and they gave me $700 cash for that deposit. A sales rep called me shortly thereafter and offered another $700 for more assets so another $100K went in. I think in total I collected $2100 in "bonuses" for depositing my ESPP shares. The bulk of our investable assets are at Vanguard but I kept Merrill Edge just because they were nice enough to give me this free money. They offer most of the same benefits that VG, Fid and Sch offer so no compelling reason to close the account yet.
I slowly started selling off my ESPP/RSU stock and put it into the Magnificant 7 (minus Tesla as I view that company as radioactive and subject to detonation anytime now) and those 6 tech stocks have all performed very well in that time. This account is like playing with house money at this point as it has increased 500% in 6 years with this DCA approach. Now I'm slowly moving some of that gain into cash, hence the need to put it somewhere for now so the 3 month ladder with zero coupons was tried out.
I would never recommend this method to anyone unless you had the innate curiosity and desire to dabble in short term zero coupons. I plan to exit when rates drop below 4.75%. Why? No other reason than I just made up that number, feel comfortable with it and have a disciplined plan in place. I anticipate I'll start accumulating more cash positions in 3-4 years while being far more risk averse and may be seeking something that is essentially zero risk.