Cash held in MMs like SPAXX - where next ?

[PlayinwithFIRE]

I was elated earlier this year when I found reading here that the MM's offered at VG/Fid etc were approaching 5% interest. Having moved a substantial amount of dollars from a dismal brick+mortar savings to one of these...I look forward to 1st of the month a lot more than I used to

But all good things must end I'm told...and I've been wondering how long the interest rates on these MMs will last in the 5% range?

When they start to drop, where then to move the money ? This is not money I would need for emergencies..so it can be locked up for a bit.


thank you

PWF

 

[razztazz]

But all good things must end I'm told...and I've been wondering how long the interest rates on these MMs will last in the 5% range?

Yes, inquiring minds want to know. I am loving these interest rates but I know they won't last forever. Will we return to the zero/near zero rates of the last 15 years? Super low rates were to keep the economy on life support and make it look like it had recovered. Part of me says we won't go that low again but it seemed to work well before so, the temptation to use them again will be there.

 

[njhowie]

The train has already left the station.

 

[Sunset]

If nothing else, buy some Treasuries (the auction ones at VG are easy to buy).

In varying lengths of maturity.

 

[imbatman]

yeah feels a little late to be moving now after the last 2 months.....I am having trouble reallocating some of my remaining play money myself. Depending on your risk tolerance and taxability and time frame......China is definitely down a bunch compared to the rest of the world and you could gamble on their someday recovery with CXSE (non-state owned companies ETF)......or you could passively ride the still higher than normal rates in a reasonable bond fund that is still well below normal pricing (ex. DODIX, FTBFX)....look up some CEFs who still have an abnormally high discount so may not have priced in all the recent recoveries yet...lock in the higher than normal ibond 1.30% fixed rate..IDK just brain dump random ideas.

 

[FiveDriver]

I see that SPAXX and FZDXX are still paying around 5% or thereabouts. I'm counting that money as part of my Fixed Income Assets.

It's easy enough to track the 7-day yield on these MM's. If you start to see a decline in the yield.....it will be time to move it into an ETF. I'll wait this out, especially in an Election Year.

 

[PatrickA5]

Same dilemma here.

I had (have) a ton in a MM earning 5.30%. Late November, I decided to split the money with a more long-term outlook, so I put 1/3rd in VOO (S&P), 1/3 in VBLTX (Bond Fund) and left a 1/3 in the money market. Doing so got my AA up to where I want to keep it long-term (50/35/15).

Not sure what I'll do with the remaining MMF money once rates start dropping. This is money we'll be using over the next 4 years until DW starts SS at 70, so I can't tie it up long term. Might end up having to buy some 12-24 month CDs with about half. The rest I'll probably just let ride down - but hopefully not to zero.

 

[audreyh1]

As long as very short term treasuries like 3 month or shorter yield well above 5%, you should still see around 5% in MM Funds.

They will probably stay there until the Fed starts lowering rates, unless there is a financial hiccup that cause rates to drop overall.

 

[jazz4cash]

These rates and inverted yield curve have pushed many folks into MM funds and short term FI. I think many will be very disappointed when these rate fall eventually. Instead of using MM funds just for liquidity, folks are piling into these as a primary component of their FI allocation because the rates are so attractive. It’s not to late to extend maturities or better yet setup a ladder. I have nearly zero in MM accounts. I expect rates will fall substantially but wont go back to zero.

 

[gauss]

I share your concern.

I moved a chunk of my fixed income to STRIPPED (zero-coupon) US Treasuries maturing between 2040 and 2048. I locked up YTM's over 5% for 15-24 years or so.

This money represents funds I won't need for another 15 years at least. It will serve mainly as my inflation hedge and should last me until I'm in my mid-80s age wise.

If I wanted current income, I would have bought the regular US Treasuries and not the zeros. But as mentioned below, I already have something in place for short-mid term funding.

I also have a 8 year rolling ladder of bond corporate bond etf - target maturity funds for funds that I may need sooner. They were setup during a lower interest rate environment,

-gauss

 

[jollystomper]

If nothing else, buy some Treasuries (the auction ones at VG are easy to buy).

In varying lengths of maturity.

+1

Even if you get between 4-5%, for a longer term return that is nothing to be ashamed of .

 

[audreyh1]

I still have my bond funds, short-term and intermediate.

They appreciate when rates drop. They already have since mid October.

 

[JohnDoe]

Same dilemma here.

I had (have) a ton in a MM earning 5.30%. Late November, I decided to split the money with a more long-term outlook, so I put 1/3rd in VOO (S&P), 1/3 in VBLTX (Bond Fund) and left a 1/3 in the money market. Doing so got my AA up to where I want to keep it long-term (50/35/15).

Why not buy longer term CDs now?

 

[Finance Dave]

I am doing three things:

1) Buying bond funds. When interest rates fall, bond fund values should increase. The longer the duration the better IMO. Of course I'd avoid low quality bonds.

2) Buy some 3 year and 5 year non-callable CDs. I bought a 3 year recently paying 4.3%, and a 5 year paying 3.9%. I tried to buy some 5 and 10 year non-callables a few months ago, but the rates were not very attractive.

3) There is a lot of money sitting on the sidelines in these high-yielding cash accounts as you describe. If those rates go down, many people will be looking for a place to put that money to work. SOME people may decide to move back into equities...so maybe a good time to edge back into some equities slowly.

Good luck!

 

[Montecfo]

If you are waiting for short term rates to drop before extending duration, you are leaving a lot of money on the table.

The inflation print is heading steadily down. The Fed's favorite, core PCE, has already reached the Fed's 2% target over the last 6 months. Rates have already declined quite a bit, except the shortest rates.

Plus 2024 is an election year, meaning Fed will tend to lean into rate cuts.

Not sure what else we would need to convince us.

 

[GenXguy]

I hope the Fed doesn't cut anytime soon with the core PCE running at 3.2% year over year. What's still way above the 2% target after running even higher for quite some time. They need to let things cool like they had let things run hot for way too long in the past.

 

[PatrickA5]

Why not buy longer term CDs now?

I might look at something short term. Probably no more than 12 - 18 months. I want what I have left in MMF to be pretty liquid. This is money that I'm going to actually spend over the next 2 or 3 years, so not looking to lock in long term rates.

I notice Ally still has an 18mth at 5.15% with a short 60 day EWP. Might put some money there.

Hard to give up on my VUSXX - 5.32% and state tax free.

 

[audreyh1]

If you want it short and liquid, planning to spend over the next 2 to 3 years, just leave it in a MMF or high yield savings and don’t worry about it.

 

[imbatman]

Hard to give up on my VUSXX - 5.32% and state tax free.

I am in a high tax state so always looking at avoiding those taxes. Just keep an eye on repurchase agreements in this fund (currently only 2.8% but previously over 40% in the spring). Depending on how long they did that, they can overcome short term diversions as for tax purposes, it only matters what % they publish for their weighted holdings all year at EOY (for example, 2022 here). For simplicity, I just bought FDLXX. Great article on this subject by WSJ earlier this year:

https://www.wsj.com/personal-finance/taxes/bonds-bond-funds-state-taxes-cd066239

 

[DrRoy]

Rates may start drifting down later in 2024, but will not drop nearly as fast as they rose.

 

[audreyh1]

For liquid cash to be used in 2 to 3 years with clearly known cash flow needs, some laddering of CDs and/or T-bills can be used to perhaps capture some slightly higher rates. You have to be careful not to overdo it and end up in a cash crunch.

 

[dobig]

Taking a bit of a different approach. Been plowing into SCHD with a current yield of 3.62%. Don't care very much about capital appreciation. What I do care about is the historical rise in yield. In 2013 dividends paid .90 cents. Today they pay around $2.65. If over the next 10 years I only get half that kind of dividend appreciation I'll be a happy camper.

 

[mrfeh]

When they start to drop, where then to move the money ? This is not money I would need for emergencies..so it can be locked up for a bit.

The answer depends on your definition of "for a bit".

 

[audreyh1]

Exactly!

 

[njhowie]

Rates may start drifting down later in 2024, but will not drop nearly as fast as they rose.

If there is a market crash or official acknowledgement of a recession, we'll see rates slashed faster than you can blink.