Re-balance Cycle Reminder All MyPlanIQ’s newsletters are archived here.
For regular SAA and TAA portfolios, the next re-balance will be on Monday, September 24, 2018. You can also find the re-balance calendar for 2017 on ‘Dashboard‘ page once you log in.
As a reminder to expert users: advanced portfolios are still re-balanced based on their original re-balance schedules and they are not the same as those used in Strategic and Tactical Asset Allocation (SAA and TAA) portfolios of a plan.
Please note that we now list the next re-balance date on every portfolio page.
Money Market ETFs?
At MyPlanIQ, we pay serious attention to cash and near term returns. In this newsletter, we explore whether some ultrashort term bond ETFs can be used as money market alternatives.
The missing cash returns
We have addressed this topic several times in the past. The main complaint we have had is that in the US, many brokerages try to make money off clients’ cash in several ways. There are two main problems with cash returns in a brokerage account.
- Lack of money market mutual funds: in the US, virtually all brokerages offer very few choices of money market funds.Many are very low yielding cash sweep accounts. Currently, one of the best money market fund Vanguard Prime Money Market Fund VMMXX (current yield: 2.07%, expense 0.16%) is only available to clients in Vanguard brokerage. You can’t access to this fund from other brokerage (note, some 401k plans offer this fund even though they are on some other platforms such as Fidelity benefit, but that’s a different story). If you are a Schwab client, you can only invest in its money market funds, ditto Fidelity, TD Ameritrade etc.
- High expense ratios and low returns of many money market funds: we have done various comparison on this subject. Just a quick example: TD Money Market Portfolio has yield 1.3% (a select class is 1.5%), compared with Vanguard prime money market VMMXX’s 2.07%. We encourage readers to find out money market fund yields from your brokerages and compare.
Of course, we all know that profits from clients’ cash represent some big chunk of the overall profit in a brokerage. That’s why brokerages have every incentive to keep money market fund accessibility limited.
Ultrashort term bond ETFs
Based on the above discussion, it’s hard to get a good cash return in a given brokerage (unless you switch to Vanguard, say). Furthermore, if you are a foreigner, you are pretty much excluded from US money market mutual funds as they are only available to US citizens. That’s why investors have turned to ETFs, hoping to find some alternatives.
Unfortunately, in theory, there is no money market ETF as in an ETF, its price is determined by market participants while in money market mutual funds, its price is always guaranteed to be 1.00. Actually to be more precise, the NAV (Net Asset Value) of a money market fund is always guaranteed to be 0.995 < NAV < 1.005, or put it another way, it’s possible that when you put in $1000 to a money market fund and you try to redeem it later on, you are guaranteed to get back no less than $995. So this means a $0.5% fluctuation band.
Recently, some investors have tried to utilize ultrashort term bond ETFs as money market fund alternatives. Let’s delve into this a little bit more.
Based on Morningstar, an ultrashort term bond fund is defined as 25% of the three- year average effective duration, or put it another way, the duration should be less than 3/4 or 0.75 year.
In general, a money market fund’s effective duration should be around 3 months or less. In fact, as a rule of thumb, a money market fund yield should be slightly better than or the same as the yield of the 3 month Treasury Bill. For example, currently, Vanguard VMMXX yields 2.07% while 13 week T Bill yields 2.08%. In the meantime, Vanguard Federal Money Market VMFXX yields 1.92%.
Here are some of the most popular ‘money market fund’ ETF alternatives (all of them are classified as ultrashort term bond fund based on Morningstar):
|Name||Expense||AUM||Spread||Effective Duration||SEC Yield|
|MINT (PIMCO Enhanced Short Maturity Active ETF)||0.35%||9.9 bil||0.01%||0.46 yr||2.42%|
|ICSH (iShares Ultra Short Term Bond)||0.08%||0.45 bil||0.08%||0.39 yr||2.54%|
|FLRN (SPDR® Barclays Investment Grd Fl Rt ETF)||0.15%||3.8 bil||0.03%||0.11 yr||2.51%|
|NEAR (iShares Short Maturity Bond)||0.25%||4.4 bil||0.02%||0.48 yr||2.52%|
|FLOT (iShares Floating Rate Bond)||0.2%||10.8 bil||0.04%||0.14 yr||2.47%|
|SHV (iShares Short Treasury Bond)||0.15%||15.4 bil||0.01%||0.4 yr||1.96%|
|Vanguard Federal Money Market VMFXX||0.11%||97.8 bil||NA||47 days||1.92%|
|Vanguard Prime Money Market VMMXX||0.16%||105 bil||NA||47 days||2.07%|
|1Yr AR||3Yr AR||5Yr AR|
|MINT (PIMCO Enhanced Short Maturity Active ETF)||1.1%||1.6%||1.7%||3.2%|
|FLRN (SPDR® Barclays Investment Grd Fl Rt ETF)||1.6%||2.3%||1.9%||1.0%|
|FLOT (iShares Floating Rate Bond)||1.7%||2.4%||1.6%||1.1%|
|SHV (iShares Short Treasury Bond)||1.0%||1.3%||0.7%||0.4%|
|Vanguard Federal Money Market VMFXX||1.04%||1.41%||0.7%||0.44%|
|Vanguard Prime Money Market VMMXX||1.17%||1.59%||0.9%||0.55%|
- The two floating rate bond ETFs (FLRN, FLOT) have the shortest duration which closely match Vanguard money market funds’. However, one should be aware that floating rate bond funds mostly consist of bank loans. They can suffer from a meaningful loss during a bank crisis as evident in 2008 when most floating rate bond funds briefly had a big loss. Thus, one should at least diversify and hold other ultra short term funds to balance out.
- The other ETFs in the table all have longer maturity than Vanguard’ money market funds. Thus they are more subject to price fluctuation. For example, in the following table, one can see that MINT lost 0.23% in September 2015 and there were several months when it lost money. On the other hand, VMMXX didn’t lose any money in these period. The following data are courtesy of Morningstar:
- The trading spread is another major concern for ETFs: ICSH, the one with the least asset, has the biggest spread 0.08%. That’s not a big one if one holds the fund for a long time (such as a year), but for short term usage, this can certainly have a serious impact — imagine you hold ICSH for less than a month, it will take 0.08% out of your one month yield (about 0.2% in the current 2.5% annualized yield). Furthermore, what will happen if you just hold it just for a few weeks and much shorter than not a month?
- Finally, the trading commission (if there is any) can be another major disadvantage. If your cash is really to be used within 3 months or so, trading commission and spread can eat into your returns as one can imagine that cash reserved for 1 or less than 3 month use is probably not a large sum and commission can become a larger and meaningful percentage bite for your returns.
The last point is important: basically, if your cash is needed within 3 months, the above ETFs are really not ideal for this purpose. On the other hand, if you need the capital for a longer period of time such as 6 months or 9 months, the above ETFs can be used. However, in the current rising rate environment, as every month passes by and it’s approaching to the time when it will be redeemed, one should to invest in a real money market fund or a fixed T Bills or CDs to avoid a late stage loss. This thus creates further hassles for investors.
In conclusions, the so called ‘money market’ ETFs are not real money market mutual fund substitutes. They should be really used as what they are supposedly to be: only for cash they are needed for a longer period than 3 months. Unfortunately, for many average investors, if you have a choice, the best bet for your real short term cash is still a traditional money market fund or even a fixed maturity short term T Bill (such as one month) or broker CDs. On the other hand, if you are totally excluded from traditional money market funds for whatever reasons, you might want to consider using these ETFs for the purpose of a bit longer term holding.
US stocks finally broke its historical high made in February this year. The current market internals are showing some short term upward momentum. US bonds are in a somewhat neutral trend while international and emerging market stocks are still in a negative trend. As always, we advocate managing one’s risk to a comfortable level in the current over valued and over extended situation. A tactical portfolio should enjoy the ride till the markets tell the otherwise while a strategic portfolio should be looked at more carefully to trim down excessive risk exposure.
For more detailed asset trend scores, please refer to 360° Market Overview.
Now that the Trump administration has been in the office for more than a year, the economy and financial markets are in general still in a good shape. Whether the economy will continue to benefit from the supposedly trickle down of the tax cut, the deregulation, and the promised infrastructure spending remains to be seen. On the other hand, stocks continued to ascend, regardless of the progress. Looking ahead, however, we remain convinced that markets will experience more volatilities at some point when reality finally sets in.
In terms of investments, U.S. stock valuation is at a historically high level. It is thus not a good time to take excessive risk. However, we remain optimistic about U.S. economy in the long term and believe much better investment opportunities will arise in the future.
We again would like to stress for any new investor and new money, the best way to step into this kind of markets is through dollar cost average (DCA), i.e. invest and/or follow a model portfolio in several phases (such as 2 or 3 months) instead of the whole sum at one shot.
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–Thanks to those who have already contributed — we appreciate it.
- August 20, 2018: How Momentum Investing Stacks Up?
- August 13, 2018: Total Return Bond ETF
- August 6, 2018: Fidelity Zero-Fee Index Funds
- July 30, 2018: Tax Efficient Portfolios
- July 23, 2018: Municipal Bond Funds And Portfolios
- July 16, 2018: A Guide To Conservative Portfolios
- July 9, 2018: Conservative Allocation Mutual Funds Based Portfolios
- July 2, 2018: Small Cap Stocks For The Long Term
- June 25, 2018: What Can We Learn From GE’s Removal From Dow Jones Index?
- June 18, 2018: The ‘Best’ Balanced Portfolio Continues To Excel
- June 11, 2018: Is 10 Year Long Enough For Portfolio Comparison?
- June 4, 2018: Action Plan: Risk Review For Investments
- May 21, 2018: Rising Rates, Consumer Staples And Stock Index
- May 14, 2018: Newsletter Collection Update
- May 7, 2018: Money Market Fund Taxonomy
- April 30, 2018: Momentum Investing Review
- April 23, 2018: Commodities In Current Environment
- April 16, 2018: Municipal Bonds As A Fixed Income Asset Class
- April 9, 2018: Exponential Or Compounding Nature In Investing
- April 2, 2018: Inside Of The Stock Chaos
- March 26, 2018: Total Return Bond Update
- March 19, 2018: Treasury Bills vs. Brokered CDs
- March 12, 2018: Defensive Conservative Portfolio Review
- March 5, 2018: Warren Buffett’s Advices
- February 26, 2018: Pros And Cons of Strategic And Tactical Portfolios In 2018
- February 12, 2018: Trend Review
- February 5, 2018: Market Selloff And Long Term Investing
- January 29, 2018: The New Addition To Our Total Return Bond Fund Candidates
- January 22, 2018: Where Are Bonds Heading?
- January 15, 2018: Tactical Portfolios Review
- January 8, 2018: Strategic Portfolios Review
- December 18, 2017: Record Highs And Risk
- December 11, 2017: Cash Return And Interest Rate Update
- December 4, 2017: Mutual Fund Star Ratings: Are They Useful?
- November 20, 2017: Thankful And Mindful
- November 13, 2017: Is This A Good Time For Retirees Or Would Be Retirees?
- November 6, 2017: Newsletter Collection Update
- October 30, 2017: Rising Interest Rates
- October 23, 2017: A Primer For Portfolios
- October 16, 2017: REITs As An Asset Class
- October 9, 2017: Conservative Portfolios Revisited
- October 2, 2017: The Role of Short Term Bond Funds
- September 25, 2017: Fees In Cash Investments
- September 18, 2017: Conservative Portfolios Review
- September 11, 2017: International Diversification Effect
- September 4, 2017: Invest And Speculate Revisited
- August 28, 2017: Total Return Bond Fund Portfolios: Where Do They Fit?
- August 21, 2017: Portfolio Performance: A Walk In The Past
- August 14, 2017: Fidelity Commission Free ETFs Update
- August 7, 2017: I Didn’t Learn Anything — Mistake vs. Temporary Underperformance
- July 31, 2017: Asset Classes And Fund Choices: A Primer
- July 24, 2017: Total Return Bond Fund Portfolios And Cash
- July 17, 2017: Long Term Stock Holding Periods For Retirement
- July 10, 2017: Half Year Asset Trend Review
- June 26, 2017: How To Beat The Best Balanced Allocation Fund
- June 19, 2017: Newsletter Collection Update
- June 12, 2017: A Mixed Bag Performance of Momentum Investing
- June 5, 2017: How To Start A New Portfolio
- May 29, 2017: Alternative Assets And Their Role In Portfolios
- May 22, 2017: Summer Seasonality And Portfolio Management
- May 15, 2017: Cash: Banking Or Investing?
- May 8, 2017: Holding Period of Long Term Timing Portfolios
- May 1, 2017: Debate on Risk vs. Volatility
- April 24, 2017: The Long Term Stock Market Timing Return Since 1871
- April 17, 2017: Risk vs. Volatility: Long Term Stock Market Returns
- April 10, 2017: Total Return Bond ETFs And Portfolios
- April 3, 2017: Quarter End Asset Trend Review
- March 27, 2017: Practical Consideration For IRAs And 401k Accounts
- March 20, 2017: Fund Fees: That’s (Still) Outrageous
- March 13, 2017: Long Term Stock Valuation Review
- March 6, 2017: Asset Classes for Retirement Investments
- February 27, 2017: Fidelity Total Bond Fund Review
- February 20, 2017: Long Term Stock Timing Based Portfolios And Their Roles
- February 13, 2017: Alternative Investment Portfolios Review
- February 6, 2017: Tax Free Municipal Bond Investments Review
- January 30, 2017: Brokerage Specific Conservative Portfolios
- January 23, 2017: Fixed Income Portfolio Review
- January 16, 2017: Long Term Trend Following Portfolio Review
- January 9, 2017: Tactical Asset Allocation Review
- January 3, 2017: Strategic Asset Allocation Review
- December 12, 2016: Enhanced Index Funds
- December 5, 2016: Review Of Broad Base Core Mutual Funds For Brokerages
- November 28, 2016: Core Index ETFs Review
- November 21, 2016: International Exposure Of U.S. Large Companies
- November 14, 2016: Asset Trends After The Election
- November 7, 2016: Rising Rate And Current Bond Trend
- October 31, 2016: Economy Power And Long Term Stock Returns
- October 24, 2016: Current Commodity Trend And Managed Futures
- October 17, 2016: Investment Mistakes And Good Or Bad Investment Strategies
- October 10, 2016: Momentum Investing Review
- October 3, 2016: Survey & Feedback
- September 26, 2016: Fixed Income Investing: Actively Managed Funds vs. Index Funds
- September 19, 2016: Stock Investing: Actively Managed Funds vs. Index Funds
- September 12, 2016: Newsletter Update
- September 5, 2016: Overvalued Markets And Long Term Timing Strategies
- August 29, 2016: Your 401K Finally Draws Attention
- August 22, 2016: Inflation Protected Securities TIPS For Current Overvalued Markets
- August 15, 2016: Risk On: Emerging Market Stocks And Small Cap Stocks
- August 8, 2016: Portfolio Construction Using Stock ETFs And Bond Mutual Funds
- August 1, 2016: Adding Value To Your Own Investments
- July 25, 2016: Tactical Asset Allocation Funds Review
- July 18, 2016: Strategic Asset Allocation & Lazy Portfolio Review
- July 11, 2016: Asset Trend Review
- June 27, 2016: Secular Cycles For Tactical And Strategic Investment Strategies
- June 20, 2016: A World of Debt
- June 13, 2016: Managed Futures For Portfolio Building
- June 6, 2016: Newsletter Summary
- May 30, 2016: Swensen Portfolio And Permanent Portfolios
- May 23, 2016: AAII Article And Some Web Changes
- May 16, 2016: The PIMCO (Dis)Advantages
- May 9, 2016: Boost Your Dull Summer Investments
- May 2, 2016: Low Cost Index Fund Investing
- April 25, 2016: Tax Free Municipal Bond Funds & Portfolios
- April 18, 2016: Asset Class Trend Review
- April 11, 2016: Construction of Sound And Conservative Portfolios
- March 28, 2016: Total Return Bond ETFs Review
- March 21, 2016: Small And Large Company Stock Performance In Different Economic Expansion Cycles
- March 14, 2016: Are Tactical And Timing Strategies Losing Steam?
- March 7, 2016: Defined Maturity Bond Fund Analysis
- February 29, 2016: Smart Strategic Asset Allocation Rebalance When Market Trend Changes
- February 22, 2016: Be Cash Smart
- February 15, 2016: Bond ETF Portfolios
- February 8, 2016: Newsletter Collection Update
- February 1, 2016: Total Return Bond Fund Portfolios In A Volatile Period
- January 25, 2016: Alternative Portfolios Review
- January 18, 2016: Strategic Asset Allocation: A Cautious Outlook
- January 11, 2016: Review Of Trend Following Tactical Asset Allocation
- January 4, 2016: What Worked And Didn’t In 2015
- December 21, 2015: Distressed Assets
- December 14, 2015: High Yield Bonds And Their Correlation With Stocks
- December 7, 2015: Diversification And Global Allocation
- November 30, 2015: Investors and Speculators Combined
- November 23, 2015: Active Stock Fund Performance Consistency
- November 16, 2015: Permanent, Risk Parity And Alternative Portfolios Review
- November 9, 2015: Broad Base Core Mutual Fund Review
- November 2, 2015: Broad Base Index Core ETFs Review
- October 26, 2015: Total Return Bond Fund Review
- October 19, 2015: Advanced Portfolio Review
- October 12, 2015: What About Commodities?
- October 5, 2015: Core Satellite Portfolios In A 401k Account
- September 28, 2015: Risk Managed Strategic Asset Allocation Portfolios Revisited
- September 21, 2015: Quest For The Best Investment Strategy
- September 14, 2015: Core Satellite Portfolios In Market Turmoil
- September 7, 2015: Market Rout Creates An Opportunity to Reposition Your Portfolios
- August 31, 2015: Review of Asset Allocation Funds and Portfolios
- August 24, 2015: Market Rout And Your Portfolios
- August 17, 2015: ETF or Mutual Fund Based Portfolios
- August 10, 2015: Updated Newsletter Collection
- August 3, 2015: Slippery Asset Trends
- July 27, 2015: Performance Dispersion Among Momentum Based Portfolios
- July 20, 2015: Global Balanced Portfolio Benchmarks
- July 13, 2015: Pain in Tactical Portfolios
- July 6, 2015: Fixed Income Total Return Bond Funds In Strategic Asset Allocation Portfolios
- June 29, 2015: Core ETF Commission Free Portfolios
- June 22, 2015: Secular Asset Trends
- June 15, 2015: Giving Up Bonds?
- June 1, 2015: Summer Blues?
- May 26, 2015: Cash, Bonds and Stocks In A Rising Rate Environment
- May 18, 2015: Portfolio Update
- May 11, 2015: Pain in Fixed Income?
- May 4, 2015: The Balanced Stock and Long Term Treasury Bond Portfolios
- April 27, 2015: Long Term Treasury Bond Behavior
- April 20, 2015: 529 College Savings Plan Rebalance Policy Change
- April 13, 2015: Total Return Bond Funds As Smart Cash
- April 6, 2015: The Low Return Environment
- March 30, 2015: Brokerage Specific Core Mutual Fund Portfolios 2
- March 23, 2015: Investment Arithmetic for Long Term Investments
- March 16, 2015: Brokerage Specific Core Mutual Fund Portfolios
- March 9, 2015: Newsletter Collection Update
- March 2, 2015: Total Return Bond ETFs
- February 23, 2015: Why Is Global Tactical Asset Allocation Not Popular?
- February 16, 2015: Where Are Permanent Portfolios Going?
- February 9, 2015: How Have Asset Allocation Funds Done?
- February 2, 2015: Risk Management Everywhere
- January 26, 2015: Composite Portfolios Review
- January 19, 2015: Fixed Income Investing Review
- January 12, 2015: How Does Trend Following Tactical Asset Allocation Strategy Deliver Returns
- January 5, 2015: When Forecast Fails
- December 22, 2014: Long Term Asset Returns: How Long Is Long?
- December 15, 2014: Beaten Down Assets
- December 8, 2014: Implementing Core Asset Portfolios In a Brokerage
- December 1, 2014: Two Key Issues of Investment Strategies
- November 24, 2014: Holiday Readings
- November 17, 2014: Retirement Spending Portfolios Update
- November 10, 2014: Fixed Income Or Cash
- November 3, 2014: Asset Trend Review
- October 27, 2014: Investment Loss, Mistakes And Market Cycles
- October 20, 2014: Strategic Portfolios With Managed Volatility
- October 13, 2014: Embrace Volatility
- October 6, 2014: Tips For 401k Open Enrollment
- September 29, 2014: What Can We Learn From Bill Gross’ Departure From PIMCO?
- September 22, 2014: Why Total Return Bond Funds?
- September 15, 2014: Equity And Total Return Bond Fund Composite Portfolios
- September 8, 2014: Momentum Based Portfolios Review
- September 1, 2014: Risk & Diversification: Mint.com Interview
- August 25, 2014: Remember Risk
- August 18, 2014: Consistency, The Most Important Edge In Investing: Tactical Case
- August 11, 2014: What To Do In Overvalued Stock Markets
- August 4, 2014: Is This The Peak Or Correction?
- July 28, 2014: Stock Musings
- July 21, 2014: Permanent Portfolios & Four Pillar Foundation Based Framework
- July 14, 2014: Composite Portfolios Review
- July 7, 2014: Portfolio Behavior During Market Corrections
- June 30, 2014: Half Year Brokerage ETF and Mutual Fund Portfolios Review
- June 23, 2014: Newsletter Collection Update
- June 16, 2014: There Are Always Lottery Winners
- June 9, 2014: The Arithmetic of Investment Mistakes
- June 2, 2014: Tips On Portfolio Rebalance
- May 26, 2014: In Praise Of Low Cost Core Asset Class Based Portfolios
- May 19, 2014: Consistency, The Most Important Edge In Investing: Strategic Case
- May 12, 2014: How To Handle An Elevated Overvalued Market
- May 5, 2014: Asset Allocation Funds Review
- April 28, 2014: Now The Economy Backs To The ‘Old Normal’, Should Our Investments Too?
- April 21, 2014: Total Return Bond Investing In The Current Market Environment