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Where should I be keeping my emergency fund? HYSA?
# random
s
Where should I be keeping my emergency fund? HYSA?
👌 1
m
Yes 👍 Or no penalty CDs
s
why is a mutual fund a bad idea? Can't I sell at any point?
m
Which mutual fund were you thinking?
There are certainly some ETFs I would be fine recommending as an emergency fund for someone who was looking for a little more risk.
s
VFIAX, VIGAX
m
Absolutely not. Those are high volatility equity stocks. In an emergency you would be forced to sell them at a loss in a down market. Way too much risk for an emergency.
👆 1
Something like BND could be viable if you wanted a little more risk. Or maybe even relying on margin loans would be better (if interest rates are low enough) but relying on selling high volatility equity stocks at what could be a 50% loss is not a good idea.
r
spaxx or similar money market funds might be okish but it takes time to sell themn
h
If using fidelity, use FDLXX. Vanguard use VUSXX.
80%-90% state & city tax free, and better rates than nearly any HYSA. It's liquid as well
m
Interesting. Can you only get that through Fidelity?
m
You can get both of them from any brokerage.
These are US treasury only money market funds. Great options. Vanguard’s VUSXX costs 0.09% with a 7 day yield of 4.52% Fidelity’s FDLXX costs 0.42% with a 7 day yield of 4.23% If you want absolutely no taxes, FMOXX costs 0.47% with a 7 day yield of 2.27% I personally only get ETFs (as opposed to mutual funds) and right now it looks like the best option here is MMKT, but it looks like this is a new sector for ETFs so I am sure more will launch soon MMKT costs 0.20% with a 7 day yield of 4.46%
SGOV, TBIL, and TBLL are other ETF option that are very interesting
My general recommendation for safety though is bonds, ticket BND, costs 0.03% with a 7 day yield of 4.42%
BND has the highest 1 year return of any investment in this thread, as well as the lowest expense ratio.
👍 1
r
BND is a lot more volatile over multiple years
For FDLXX / VUSXX, are they exempt from federal or state tax?
m
Agreed on the volatility of BND, which is why by default I recommend a HYSA and am only bringing up BND when they want a bit more risk.
f
I keep mine in a money market fund but am not sure if it's a great idea to get that extra half percent and lose FDIC insurance. It's a pretty low risk, but it happened in 2008
💯 1
f
Emergency should be cash or cash-like (Money Market, CDs, 0-3 month Treasury, etc.). Loss on BND would be 6.69% since 1/1/2021 even with dividends reinvested.
👍 1
h
The way FDLXX / VUSXX work is that a percentage (a very high percentage) are state and city tax free. So for FDLXX for example, over 90% was state and city tax free last year. It varies year to year based on what percentage of the fund is invested in treasury vehicles.
And the stated interest rate (7 day yield) is NET of the expense ratios, FYI.
r
@hallowed-air-46987 but not federal tax free, right? If you buy treasuries directly, aren’t those tax-free, curious why that doesn’t translate into the fund.
h
None are federal tax free. Treasuries aren't federal tax free, either.
r
Thank you. Am I correct in assuming that funds like VSUXX and FDLXX are not insured so if the company running them messed up, the money can get lost (unlike FDIC insurance on HYSA)?
f
Correct. It's not insured. I don't understand the mechanics of it, you can read about the Reserve Primary Fund collapse in 2008. (Although it appears investors got almost all their money back after lawsuits.)
r
IMHO, I rather pay a little more state taxes for the peace of mind with FDIC insurance
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