Floating rate bond etf in lieu of savings?

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kjm
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Floating rate bond etf in lieu of savings?

Post by kjm »

With my "high yield" savings account paying 0.6% right now, I'm looking for alternatives. I came across FLOT, which provides exposure to floating rate, short duration corporate bonds. There's no interest rate risk here, but I guess there's still risk of the underlying holdings defaulting. Thoughts on using this as an alternative to high yields savings?
Makefile
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Re: Floating rate bond etf in lieu of savings?

Post by Makefile »

Did you already rule out Series I savings bonds? This isn't super helpful due to the $10,000 annual limit (ways to get around it including paper bonds with tax refund) and one year minimum holding period, but it's something. I've been buying some every year for a while now.
Topic Author
kjm
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Re: Floating rate bond etf in lieu of savings?

Post by kjm »

Did you already rule out Series I savings bonds? This isn't super helpful due to the $10,000 annual limit (ways to get around it including paper bonds with tax refund) and one year minimum holding period, but it's something. I've been buying some every year for a while now.
I did consider this, but the annual limit and minimum holding period are going to be problems for me.
fabdog
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Re: Floating rate bond etf in lieu of savings?

Post by fabdog »

You can use the search box to find previous threads discussing this fund, including using as a short term savings vehicle.

Here's an example

viewtopic.php?t=295346

Mike
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Re: Floating rate bond etf in lieu of savings?

Post by secondopinion »

kjm wrote: Fri Dec 04, 2020 4:00 pm With my "high yield" savings account paying 0.6% right now, I'm looking for alternatives. I came across FLOT, which provides exposure to floating rate, short duration corporate bonds. There's no interest rate risk here, but I guess there's still risk of the underlying holdings defaulting. Thoughts on using this as an alternative to high yields savings?
Look at the history of FLOT (March 2020) and the NAV; ETF price mismatch to NAV was terrible (> 10.00% at times) during this period. ETF can be suitable for an investment holding in place of a mutual fund, but never as a savings account. Be cautious with ETFs as they have that weakness.
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000
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Re: Floating rate bond etf in lieu of savings?

Post by 000 »

FLOT has an SEC yield of 0.35%. Why is that better than FDIC insured savings at 0.60%?
UpperNwGuy
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Re: Floating rate bond etf in lieu of savings?

Post by UpperNwGuy »

What's wrong with 0.6% high yield savings? That's the going rate these days.
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Re: Floating rate bond etf in lieu of savings?

Post by Northern Flicker »

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Topic Author
kjm
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Re: Floating rate bond etf in lieu of savings?

Post by kjm »

Look at the history of FLOT (March 2020) and the NAV; ETF price mismatch to NAV was terrible (> 10.00% at times) during this period. ETF can be suitable for an investment holding in place of a mutual fund, but never as a savings account. Be cautious with ETFs as they have that weakness.
Good call-out. FLOT has traded at a premium to NAV historically with the exception of the March feak-out. There are other floating rate bond ETFs out there. I guess I'm more interested in the idea of of something like this in general rather than FLOT in particular.
FLOT has an SEC yield of 0.35%. Why is that better than FDIC insured savings at 0.60%?
Yahoo Finance shows an annual yield of 1.71% and expense ratio of .2%. Your comment implies I'm not looking at this the right way? Isn't the SEC yield you're quoting for the trailing 30-day period, or is that number annualized?
What's wrong with 0.6% high yield savings? That's the going rate these days.
Nothing. I just want a higher yield.

I don't see this as an all-or-nothing proposition. Dividing shorter-term money into high-yield savings, short-term treasuries and something like this seemed reasonable.
000
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Re: Floating rate bond etf in lieu of savings?

Post by 000 »

kjm wrote: Fri Dec 04, 2020 8:57 pm
FLOT has an SEC yield of 0.35%. Why is that better than FDIC insured savings at 0.60%?
Yahoo Finance shows an annual yield of 1.71% and expense ratio of .2%. Your comment implies I'm not looking at this the right way? Isn't the SEC yield you're quoting for the trailing 30-day period, or is that number annualized?
I used 30 day SEC yield from the iShares website, which is annualized and IMO the best metric to guess future yield.

Also, the SEC yield is stated net of the ER (you don't have to subtract it yourself).
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nisiprius
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Re: Floating rate bond etf in lieu of savings?

Post by nisiprius »

You might be interested in this Bogleheads Wiki article, Using mutual funds and ETFs for short-term savings (6 months): FLOT

You will have to decide how to interpret the data according to your own feelings about risk. You can, however, see that from 8/2011 - 12/2019 there were 96 overlapping six-month periods of time, and that FLOT underperformed the Vanguard Prime Money Market fund in 15 of them, and actually lost money in 11 of them. In the worst such period, 8/2011 through 1/2012, instead of making money, a $10,000 investment in FLOT would have lost -$68.64.

As I say this is very much your personal judgement, and that certainly is a trivial loss, but I personally would feel annoyed at myself if I invested in FLOT because I wanted to make more money than I would have made in a bank account, and ended up losing money instead.

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