I've been watching money market yields for the last several months as interest rates have skyrocketed. I compare the 7 day yield of my money markets at Fidelity, T Rowe Price and Vanguard to see where the best "bang for the buck" exists.
I've found Fidelity to pay 23 to 40 basis points less than Vanguard's money markets. T Rowe is less than Vanguard, but by only a basis point or two. The gap is closing now but it is still 23 basis points lower at Fidelity. This means Fidelity is providing a lower return than you could get elsewhere. Fidelity gets a benefit from the capital if the investor is uninformed regarding yield differentials.
Since I have always believed, like Buffett does, to keep a significant cash position, I want the best return on liquid assets as possible. Many money managers "fully optimize" their cash by reducing their cash as much as possible. This process seems to make sense, but it misses a fine point. When the market really goes south, the deals of a lifetime avail themselves. If optimized into stocks, the portfolio owner has no cash to take advantage of those fantastic "deals".
While I keep a large percentage of cash, I want to get the best returns on cash while I wait and watch for the "deals of a lifetime" to unfold.
So move your liquid funds to the best money market to benefit yourself. The heck with the brokerage firms.
The brokerage firms will not allow you to electronically move funds to another brokerage firm, but you can link the brokerage firm’s money markets to your bank. So you move it out of one brokerage firm to your bank and then to another brokerage firm from your bank. It is a two-step move. Thus, I always set up brokerage money markets so I can move money to and from my brokerage money market to my bank. If you have significant cash funds, this pays very well.
In portfolio management, it is important to closely watch "leakage" whether it is fees or low returns for commensurate risk. There are significant funds to be made or held on to by just paying attention.
Don’t fall asleep at the wheel! Don't be fooled. Be aware of these important circumstances. Like Chinese water torture all those drips can add up and affect your long term returns.
Be smart, be well-read, be aware and be successful.
