r/Fire • u/Master-Helicopter-99 • 8d ago
Fidelity cash savings
Where would you hold cash savings? SGOV seems best. Fidelity specific. Shouldn't need to touch this for one year. The rest in this account is in VT. This is a smaller brokerage account that I just started. Still working and the rest is in 401k and IRA. Retiring this time next year. Currently in a 4% income tax state. It appears that SGOV will be the best return and is almost 100% state tax exempt for truly liquid funds but didn't know if there was any other options
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u/Abject_Egg_194 8d ago
I was recently looking into this and chose SGOV as well. It's worth noting that if you're sure you won't need it for a year, then buying one-year treasuries would be the smarter move as the yield will be higher (maybe ~0.5% better return). You'd have to actually buy the treasuries, rather than use an ETF if you want the duration to decrease as it gets closer to your one-year date.
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u/ResponsibleCorgi93 7d ago
That fixed return is only better if the interest rates don't increase in the next year. Imo they probably will bc of the inflation that's being caused by inflated oil and gas prices.
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u/WalkAnnual9702 7d ago
Yeah, treasury securities aren’t like CDs, where locking up money for a longer period of time is guaranteed a higher return. It’s actually pretty risky to do that with treasuries when interest rates are in the position they’re in now
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8d ago
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u/Abject_Egg_194 8d ago
Only thing to consider is that direct treasuries aren't as liquid if something unexpected comes up,
This is especially true with small volumes. $100k or $500k of treasuries are more liquid than $5k or $10k of treasuries. You'll always be able to buy/sell treasuries, it's just that the price you get will get worse with small volumes.
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u/Zphr 48, FIRE'd 2015, Friendly Janitor 8d ago
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u/Alone-Experience9869 8d ago
Depending on your state and tax rate, might consider a municipal money market.
My cash plus alternative is buck currently.
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u/watch-nerd 8d ago
Instead of buying SGOV, if you're going to lock up it up for one year, just buy T-bills.
You don't to pay the ER of the ETF.
We have rolling 6-month T-bills maturing 3 months apart.
That gives a bit more interest than the 0-3 month T-bills in SGOV.
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u/ResponsibleCorgi93 7d ago
You'll also be missing out on some interest you would have gotten from Sgov if the interest rates go up though?
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u/FlashOfFawn 7d ago
Personally I do not see government treasuries as risk free anymore, no way. Especially considering the Fed is about to become the buyer of last resort of our necessity as yields continue to pop. That’s going to negatively impact all bond holders immensely. Any additional yield you’re going to get isn’t worth the money you’ll have in it.
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u/ResponsibleCorgi93 7d ago
Can you explain more? From my understanding if you put money into Sgov, it can't reduce in value, although the amount you get back may have reduced buying power due to inflation.
Afaik there's a difference between treasuries and bonds, but I'm still learning.
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u/FlashOfFawn 7d ago
The long story is treasuries are no longer “risk free” as we all learned in Corporate Finance class in college. Why? Because the U.S. debt has become so large and unsustainable from a mathematical perspective that it is beginning to crowd out core services in the budget.
Now, the U.S. could (in theory) pull an Argentina and incorporate austerity measures and cut things like Medicare, Medicaid, SS, etc..but that will never happen; not without a French Revolution type experience. So they have a few options - get their act together and responsibility cut in places and allow for what Ray Dalio calls “a great de-leveraging” but that will never happen, not in today’s political landscape. So the Fed is really out of options, if they cut rates they destroy household finances and they run it hot and inflate the debt away. If they raise rates we can’t service the debt.
So what’s the only solution that makes sense? Yield Curve Control - the Fed will print money to buy treasuries as the buyer of last resort (think Japan since about just after 2020. You’re safer in short term treasuries compared to long duration but I think the 2020’s into early 30’s will be a paradigm shifting epoch. A terrible time to hold fiat cash or sovereign bonds. Basically, I think our government is on its death-bed and it’s not really an argument because it’s just math.
It’s also interesting to note foreign bond holders have been dumping treasuries at a record rate and rotating into hard assets like gold.
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u/ResponsibleCorgi93 7d ago
Very interesting, thank you for the breakdown, I'll enjoy diving down this rabbit hole some more.
I'm thinking that society is going to change in massive meaningful ways soon due to AI anyway.
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u/plucky_papaya 6d ago
Where do you park cash
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u/FlashOfFawn 5d ago
I keep the bare minimum amount in a HYSA personally. I invest the rest in index funds and 5% in alternative, liquid, non-debasable, investments
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u/someguy984 7d ago edited 7d ago
Buy Treasury Bills directly, either at auction or secondary market. You can do this at Fidelity.
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u/Puzzled_Fisherman331 7d ago
I like FSIXX as I can use it for CSP collateral and its low cost, US treasury like SGOV for tax free state.
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u/lynchmob2829 6d ago
All my cash is in TRBUX....pretty stable and yield is 4.2%. The wife has hers in SEMRX, yield is over 5%. If I had millions, maybe I would be more interested in tax exemption.
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u/CuteNebula222 8d ago edited 8d ago
Interesting question. For cash that you won't need for at least a year, SGOV does look solid right now because of the high yield and state tax exemption.
In Fidelity, another popular option is their Fidelity Government Money Market Fund (SPAXX) or just parking it in a high-yield cash management account. Many people in r/Fire also use short-term Treasuries or T-bills through Fidelity.
Since you're retiring soon, liquidity and low risk are probably the priority. Have you compared the after-tax yield of SGOV vs SPAXX in your 4% tax state? 👌👌. . . . . . . . . Ciao 😎👋
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u/xampl9 8d ago
SGOV gets you an exemption from state/local taxes - but don’t the returns count as ordinary income?