In investing, "cash" is a catch-all term encompassing various investment vehicles that generate a return without putting money at risk in the stock market.
Among such vehicles are money-market funds (MMFs) and cash-oriented ETFs. Less liquid forms of "cash" exist, too, such as Treasury obligations and brokered CDs. (Outside a brokerage account, "cash" options include bank savings accounts, bank CDs, and corporate "demand notes" offered by large companies such as Ford, GM, and Caterpillar.)
In this post, we'll focus primarily on MMFs.
A money-market fund (not to be confused with a bank money-market account) is a type of mutual fund that invests in the money market rather than the stock market. (If you've ever had someone ask, "Can you lend me $20 until the end of the month?" then you have an inkling of what the money market is about. It is a marketplace for short-term loans — in this case, multi-million dollar loans. The loan lengths range from one day to up to a year.)
MMFs come in four varieties, each specializing in lending to particular types of borrowers.
Prime Funds hold debt obligations issued by corporations, banks, and government agencies.
Government Funds hold government securities and cash.
Treasury Funds are restricted to T-bills, bonds, and notes.
Tax-Exempt Funds hold municipal bonds and other securities free from federal taxes. (Tax-exempt funds are the lowest-yielding MMFs.)
So, if you decide to park money in an MMF, which fund should you use?
Here is an overview of what's available at SMI's recommended brokers.
Fidelity
Fidelity offers 11 in-house MMFs, both taxable and non-taxable (see a complete list here). Even better, investors can designate a money-market fund as the default option for "uninvested cash" or — as Fidelity calls it — the "core position."
SPAXX (Fidelity Government Money Market Fund) is available as a core position fund for any Fidelity investor. Certain accounts also have access to FDRXX (Fidelity Government Cash Reserves). Non-retirement account holders have an additional option: FZFXX (Fidelity Treasury Money Market Fund).
As of 12/27/24, all three funds had similar "7-day yields" (i.e., a projection of what an MMF would yield over one year based on its income distributions over the past 7 days):
Choosing an MMF as one's core position fund at Fidelity makes "going to cash" as simple as selling a holding and leaving the proceeds in the default account. (It also simplifies redeploying your cash back into an equity fund when the time comes.)
However, if you would prefer to keep your core position separate and distinct from any cash held within, say, DAA or Upgrading, you could invest the proceeds in a different Fidelity MMF.
If you're unsure which fund you currently use for your Fidelity core position, log in to the company's website, select "Accounts & Trade," and then "Account Positions." Click your core position and you should see the fund name. You'll also see an option to "Change Core Position." (If you prefer, a Fidelity rep can make the change for you — call 800-544-6666.)
In addition to Fidelity's MMF options described above, the company offers other core-position options. For retirement accounts, an FDIC-insured bank sweep currently pays 2.21% APR (as of 12/27/24). There's the Taxable Interest Bearing Cash Option (FCASH) for non-retirement accounts, currently paying 2.19% (as of 12/23/24). But there is no reason to choose either since Fidelity's MMFs offer better yields.
Schwab
At Schwab, you can't select an MMF as the default option for sweep money. Instead, the default options for cash (for most customers) are" 1) An FDIC-insured "Bank Sweep" that deposits money in interest-bearing deposit accounts with Schwab-affiliated banks or 2) an SIPC-insured "Schwab One Interest" account. Both presently pay a scant 0.05%.
Contrast that with SWVXX (Schwab Value Advantage Money Fund), which had a 7-day yield of 4.28% as of 12/27/24.
To use SWVXX or any other Schwab money market fund, you must make a fund purchase (just as you would when investing in any other mutual fund). From Schwab's Trade screen, choose "Mutual Funds" (or use an "All-in-One Trade Ticket") and enter SWVXX (or the fund you prefer) in the symbol field. Choose "Buy" and enter the dollar amount you wish to purchase.
Schwab's money market funds are listed here. Select an "investor shares" fund (unless you're investing $1 million or more!).
E-Trade
In contrast to Fidelity and Schwab, which offer only in-house MMFs, E-Trade offers taxable and non-taxable money-market funds from many companies, including Federated Hermes, American Century, and (E-Trade owner) Morgan Stanley. Vanguard MMFs are available, too (minimum investment: $3,000).
Currently, nearly 20 taxable funds available via E-Trade have 7-day yields above 4.25%. You can research all of E-Trade's MMF offerings here (use the "Fund Category" option in the left column and choose "Money Market" from the dropdown menu).
Note: If you're an E-Trade investor, you may want to regularly transfer any uninvested cash to an MMF because E-Trade is among the worst-paying brokers for cash-sweep money. E-Trade currently pays a paltry 0.01%(!) on cash holdings of less than $500,000.
Firstrade
Think of Firstrade as the brokerage equivalent of a "no-frills airline." It's cheaper than the other guys, but the trade-off is irritating inconveniences. Here's a great example: Firstrade offers zero money-market funds. None.
Therefore, Firstrade customers who wish to "go to cash" must select an ETF option. An appropriate one is TBIL (US Treasury 3 Month Bill ETF). That fund had a 30-day SEC yield of 4.24% in late December. TBIL is available via Firstrade commission-free.
Vanguard
Vanguard investors have a sweet arrangement when "going to cash." VMFXX (Vanguard Federal Money Market Fund) — with a current 7-day yield of 4.40% (through 12/27/24) — is the default "settlement fund" for Vanguard account holders.
Of course, if you prefer to keep your "SMI strategy cash" separate from "uninvested cash," you can employ a different Vanguard money market fund. The company's MMF offerings and current rates are shown here (scroll to the bottom to see the complete list).
Note: For non-retirement accounts, Vanguard recently rolled out the FDIC-insured Vanguard Cash Plus Account, currently yielding 3.90% APR.
