Can someone explain to me like I’m a sixth grader whether it is better to buy t bills or invest in a money market mutual fund?
Can someone explain to me like I’m a sixth grader whether it is better to buy t bills or invest in a money market mutual fund?
Depends on the investor but treasuries are still better. You are getting 4.8% and 4.6% on 6m/1yr tbill respectively, which is still higher than current indicative yield or 7 day or w/e on something like SPAXX or SPRXX which is probably only at 4 still. Then you have the fees on that product which is like 40bps so you are really only at 3.6. You also lose tax advantage I think (don't quote me). Outside of comparing total yields, there is a liquidity advantage for the funds, as trading in and out of $50k of a tbill is not that great, but if you have $250k at least I think the tbill is probably better. If you think rates will continue to rise a lot you are at risk but if you're holding to maturity on the tbill it doesn't really matter if you want to lock in that 4.8 - duration risk is pretty limited when under a year.
Edit - don't listen to me I am wrong
1. SEC Yield is shown net of fees so you're already not understanding the product
2. Money market funds maintain a stable $1 nav, treasuries move up and down and if you're playing for 4.8% or whatever, you will be holding till maturity which is fundamentally a different product than a money market mutual fund or HY savings account
3. There are federal tax free muni money market accounts that yield more on a tax equivalent basis than treasuries which are taxable at your marginal federal tax rate
Good point on number 1. On number 2 I'd argue duration pretty immaterial if you're doing 6 months tbills, agree on longer
One other point that is hinted at in this thread but not addressed is that money market mutual funds are fundamentally different products than HY savings given the latter's FDIC guarantee.
Id argue the step changes are between HY savings and anything else, and then between tbills or a treasury money market fund vs. non treasury money market funds (muni, agency, corporate) etc. Since we're talking about cash alternatives also worth noting CD's but of course illiquidity issues (though also have FDIC guarantee).
Personally i'm sticking with tbill funds (for liquidity), high yield savings, and money market treasury funds bc one has to draw the line somewhere and while other money markets outyield in some cases I don't think the risk/reward makes sense (others may disagree).
When money markets broke the buck in '08 I believe the government backstop was a fraction of the money markets outstanding so in such a scenario i'd rather have treasuries as the underlying (others chime in if i'm misremembering this).
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is it worth throwing 2-3k in treasury yields if you have a time horizon of 20-30 years? Still in college right now and think buying these dips in tech could be more beneficial in the long term
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