Pros and Cons/Risks of Fidelity Money Market Fund Options?

[justsomeguy2018]

In my brokerage account, I currently have SPAXX and have used it for a while, though I've never kept a ton of cash sitting in the brokerage account so it's not that relevant.

In my Cash Management Account, there are the following options I think:

Core FDIC: 1.57% 7-day yield
SPAXX Govt Money Market Fund: 2.55% 7-day yield
FZFXX Treasury Money Market Fund: 2.55% 7-day yield
FDRXX Government Cash Reservers: 2.52% 7-day yield
SPRXX Prime Money Market Fund: 2.79% 7-day yield
FLGXX Flex Government Money Market Fund: 2.91% 7-day yield (nevermind just saw this is closed to investors)
FZDXX Money Market Fund Premium Class: 2.91% 7-day yield
Some other funds I don't know much about

Edit: Just saw one of the fund managers Michael Widrig is retiring on Dec 31, 2022, not sure if that matters!

I would probably have over $100,000 in this account (up to $150,000). It's function would be as a savings account/emergency fund, with some portion (maybe $25k?) allocated to utilization (bill pay, check writing, atm withdrawal etc).

But basically I could invest $100k in any of these funds.

I am ok if there is a "small risk" and by small risk I mean a small chance (3%) of a small loss of capital (less than 5% loss). Anything that could potentially "wipe me out" probably isn't what I would be interested since this is an emergency fund.

[mongstradamus]

In my brokerage account, I currently have SPAXX and have used it for a while, though I've never kept a ton of cash sitting in the brokerage account so it's not that relevant.

In my Cash Management Account, there are the following options I think:

Core FDIC: 1.57% 7-day yield
SPAXX Govt Money Market Fund: 2.55% 7-day yield
FZFXX Treasury Money Market Fund: 2.55% 7-day yield
FDRXX Government Cash Reservers: 2.52% 7-day yield
SPRXX Prime Money Market Fund: 2.79% 7-day yield
FLGXX Flex Government Money Market Fund: 2.91% 7-day yield (nevermind just saw this is closed to investors)
FZDXX Money Market Fund Premium Class: 2.91% 7-day yield
Some other funds I don't know much about

Edit: Just saw one of the fund managers Michael Widrig is retiring on Dec 31, 2022, not sure if that matters!

I would probably have over $100,000 in this account (up to $150,000). It's function would be as a savings account/emergency fund, with some portion (maybe $25k?) allocated to utilization (bill pay, check writing, atm withdrawal etc).

But basically I could invest $100k in any of these funds.

I am ok if there is a "small risk" and by small risk I mean a small chance (3%) of a small loss of capital (less than 5% loss). Anything that could potentially "wipe me out" probably isn't what I would be interested since this is an emergency fund.

In my opinion SPRXX is the riskiest of the bunch its a retail prime money market fund and contains things like commercial paper and CD and doesn't have many treasuries at all. FDRXX and SPAXX I think are very similar they are mostly treasure repos and some mortgage. FZFXX is most like traditional government money market fund , I would say its most similar to VMFXX at vanguard, they both hold treasuries and repos and nothing else. FDLXX is most similar to VUSXX as it holds only treasuries , so it should be 100% state tax exempt. For what its worth for my CMA I have FZFXX for bills and the such.

[CloseEnough]

I manage an account that has some funds in FZDXX and I view it as very low risk, unlikely to lose capital (subjectively, I don't know if it meets your definition of 3% chance of small loss). I don't have any concern that this account is subject to market risks, but perhaps that is naive on my part. In some type of total market melt down, I suppose even money market funds can go down, I guess that has happened before (but rarely).

If you truly want to control risk of loss, I would think you'd want to look at FDIC insured type accounts, so not money market.

[JoMoney]

The "Prime" money market funds, SPRXX, FZDXX, are exposed to some liquidity issues they could be required to implement control gates on the fund freezing withdrawals or requiring a fee to withdraw. They are considered very safe, but with the money market reform laws these types of funds were required to implement these new rules and monitor their liquidity. Somewhat ironically, if they ever had to implement control gates it would likely create a run on the fund exasperating the issue. People don't like being told they can't get to their money, especially short-term presumed liquid money like a money market fund or bank account. Vanguard got rid of their "Prime" money market fund. Fidelity doesn't allow you to set it as a core settlement fund any longer. The risk may be very very small, but it is a risk you should consider.
There is an example of a "Prime" money market fund called the "Reserve Primary Fund" that had a liquidity crisis in 2008, the investors did get back $.991 on the $1 , but after it froze in 2008 the investors might have waited until 2015 before getting that much back.
"Government" money market funds aren't required to have the same control gates or considered to have the liquidity issues as "Prime" or "Municipal" money market funds.
It is notable that the Federal Reserve having "learned" from the crisis in 2008 has come to the rescue providing liquidity to even non-government money market funds... but I wouldn't rely on that, different times may call for different measures, and if the Fed hadn't moved into the realm of providing liquidity to commercial bond funds and money markets it would have circumvented their ability to implement the monetary policy in other areas. Hard to push Treasury rates down to 0% interest when commercial paper goes to 20%

[Doc7]

To the posters talking about the risk of SPRXX. Is there really a “3% risk of a 5% loss of capital”, which is what the OP stated as his risk tolerance? I think there he should definitely be ok to be in SPRXX with that tolerance, do you agree? The other funds have essentially a 0% risk and SPRXX is a token amount higher.

I use SPRXX for my EF.

[JoMoney]

To the posters talking about the risk of SPRXX. Is there really a “3% risk of a 5% loss of capital”, which is what the OP stated as his risk tolerance? I think there he should definitely be ok to be in SPRXX with that tolerance, do you agree? The other funds have essentially a 0% risk and SPRXX is a token amount higher.

I use SPRXX for my EF.

Trying to numerically quantify "risk" is very problematic, and doesn't provide any context to what the consequences individually may be.
100% of the money you put in a risky investment is at risk, even if the odds of the risky event are 1 in 1000, if the event happens it impacts all of it.
If your money market is frozen and can't be accessed for a period of time, maybe years, and that coincides with a meltdown in other financial markets, jobs, and other economic issues, it may be of little help that you eventually got all the money back some time down the road.

[Zosima]

To the posters talking about the risk of SPRXX. Is there really a “3% risk of a 5% loss of capital”, which is what the OP stated as his risk tolerance? I think there he should definitely be ok to be in SPRXX with that tolerance, do you agree? The other funds have essentially a 0% risk and SPRXX is a token amount higher.

I use SPRXX for my EF.

Trying to numerically quantify "risk" is very problematic, and doesn't provide any context to what the consequences individually may be.
100% of the money you put in a risky investment is at risk, even if the odds of the risky event are 1 in 1000, if the event happens it impacts all of it.
If your money market is frozen and can't be accessed for a period of time, maybe years, and that coincides with a meltdown in other financial markets, jobs, and other economic issues, it may be of little help that you eventually got all the money back some time down the road.

I believe the risk of losing money in SPRXX or FDZXX is far lower than 3% and the magnitude of loss of capital less than 5%. However, I agree with JoMoney that one should look at the ramifications of a 1 in a long shot scenario that would be worse than the GFC. I just come to a different conclusion for my own personal situation and am comfortable holding FDZXX as a primary "cash" account at current rates.

FDZXX (and SPRXX) hold approximately 40% in Treasury and Government Repos (36%/4%) which are highly liquid. The remainder is primarily in commercial paper, CDs, Time Deposits and other Repos. The daily and weekly liquidity are approximately 50%. I sleep well at night with these holdings and the fact that Fidelity's reputation is on the line to maintain a $1.00 per share and provide liquidity. YMMV.

[Phaedrus]

There is an example of a "Prime" money market fund called the "Reserve Primary Fund" that had a liquidity crisis in 2008, the investors did get back $.991 on the $1 , but after it froze in 2008 the investors might have waited until 2015 before getting that much back.

That makes it sound more bleak than reality. Within about 16 months of breaking the buck, it looks like 98 cents was paid out: https://www.sec.gov/news/press/2010/2010-16.htm. So the extra 5 years was just to get the final 0.011 cents. I can't find a full list of the timing of distributions before that, but it seems like ~40% was distributed in 1-2 months after it broke the buck: http://www.mfwire.com/article.asp?storyID=19656&bhcp=1.

So I think a more realistic (but unlikely) tail risk is something like: you could lose a few percent, and it could take you 1-2 years to get most of the rest back.

[JoMoney]

...
So I think a more realistic (but unlikely) tail risk is something like: you could lose a few percent, and it could take you 1-2 years to get most of the rest back.

Personally, for money I might be willing to accept the risk of it being frozen for 1-2 years, I'd just assume have it in a bond fund.
Fidelity's Short-Term Bond Index fund (FNSOX) current yield to maturity is something like 4.36% (and a very low .03% ER.) The duration for that fund is 2-3 years.

[CloseEnough]

...
So I think a more realistic (but unlikely) tail risk is something like: you could lose a few percent, and it could take you 1-2 years to get most of the rest back.

Personally, for money I might be willing to accept the risk of it being frozen for 1-2 years, I'd just assume have it in a bond fund.
Fidelity's Short-Term Bond Index fund (FNSOX) current yield to maturity is something like 4.36% (and a very low .03% ER.) The duration for that fund is 2-3 years.

I can see why, if you know when you'll need those funds. The funds that I have in FZDXX are a significant amount of funds and my primary goal is to not put the principal at risk of loss, while earning some interest. However, because of some special circumstances, I have no idea if I'll want to access those funds in 6 months, 1 year, 2-3 years or even 5-6 years. With those parameters, I believe FZDXX fits my situation, so I'll give up a bit of return for more flexibility. Thanks to Phaedrus for the information on tail risk, that was helpful clarification of that history for me.

[chassis]

In my brokerage account, I currently have SPAXX and have used it for a while, though I've never kept a ton of cash sitting in the brokerage account so it's not that relevant.

In my Cash Management Account, there are the following options I think:

Core FDIC: 1.57% 7-day yield
SPAXX Govt Money Market Fund: 2.55% 7-day yield
FZFXX Treasury Money Market Fund: 2.55% 7-day yield
FDRXX Government Cash Reservers: 2.52% 7-day yield
SPRXX Prime Money Market Fund: 2.79% 7-day yield
FLGXX Flex Government Money Market Fund: 2.91% 7-day yield (nevermind just saw this is closed to investors)
FZDXX Money Market Fund Premium Class: 2.91% 7-day yield
Some other funds I don't know much about

Edit: Just saw one of the fund managers Michael Widrig is retiring on Dec 31, 2022, not sure if that matters!

I would probably have over $100,000 in this account (up to $150,000). It's function would be as a savings account/emergency fund, with some portion (maybe $25k?) allocated to utilization (bill pay, check writing, atm withdrawal etc).

But basically I could invest $100k in any of these funds.

I am ok if there is a "small risk" and by small risk I mean a small chance (3%) of a small loss of capital (less than 5% loss). Anything that could potentially "wipe me out" probably isn't what I would be interested since this is an emergency fund.

I consider any of these alternatives as zero risk in practical terms.

[steve r]

...
So I think a more realistic (but unlikely) tail risk is something like: you could lose a few percent, and it could take you 1-2 years to get most of the rest back.

Personally, for money I might be willing to accept the risk of it being frozen for 1-2 years, I'd just assume have it in a bond fund.
Fidelity's Short-Term Bond Index fund (FNSOX) current yield to maturity is something like 4.36% (and a very low .03% ER.) The duration for that fund is 2-3 years.

I realize this is an old thread. But can FNSOX be set up like a Core Account?

Or, can it be set up to automatically move money into FNSOX when the core account is above a set level and move money from FNSOX into the core when the core is too low?

I am asking if there is a way to automate -- set it and foreget it? Or do you need to monitor.

The ER differences maybe worth doing this.

[jeffyscott]

^ The only way to automate things with FNSOX in that way would probably be via some sort of managed account at an additional cost.

You can set up periodic automatic investments, but it would be a fixed dollar amount every month or whatever.

Partly because of the MM ERs, I use the similar SWSBX at Schwab (along with a ladder of individual treasuries, TIPS, CDs) in my IRA as the closest things to cash that I hold there.

Fidelity also has a short term treasury index fund with a similar ER to the short term bond index.

[JoMoney]

...
So I think a more realistic (but unlikely) tail risk is something like: you could lose a few percent, and it could take you 1-2 years to get most of the rest back.

Personally, for money I might be willing to accept the risk of it being frozen for 1-2 years, I'd just assume have it in a bond fund.
Fidelity's Short-Term Bond Index fund (FNSOX) current yield to maturity is something like 4.36% (and a very low .03% ER.) The duration for that fund is 2-3 years.

I realize this is an old thread. But can FNSOX be set up like a Core Account?

Or, can it be set up to automatically move money into FNSOX when the core account is above a set level and move money from FNSOX into the core when the core is too low?

I am asking if there is a way to automate -- set it and foreget it? Or do you need to monitor.

The ER differences maybe worth doing this.

FNSOX is a short-term bond fund. It can't be a "core" position, which is Fidelity's term for the accounts settlement fund.
My post you're responding to was talking about money to be set aside for a couple years. Explicitly not money you expect to be available to go in-out of on the regular basis.
It is a mutual fund, and Fidelity allows you to create automatic transactions transferring money in or out of mutual funds, but (as far as I know) only preset dollar amounts and a specific calendar schedule. Being a non-money market mutual fund, there is a settlement period after selling shares before the cash is available to withdraw, and it's also subject to market/interest rate risks with the value fluctuating based on current rates.
Trading in-out of a bond fund can also generate wash-sale issues, and while I think the short-term bond funds are exempt from it, Fidelity does lock-out frequent traders from frequent trading in their funds to prevent them from impacting the long-term holders.

[steve r]

...
So I think a more realistic (but unlikely) tail risk is something like: you could lose a few percent, and it could take you 1-2 years to get most of the rest back.

Personally, for money I might be willing to accept the risk of it being frozen for 1-2 years, I'd just assume have it in a bond fund.
Fidelity's Short-Term Bond Index fund (FNSOX) current yield to maturity is something like 4.36% (and a very low .03% ER.) The duration for that fund is 2-3 years.

I realize this is an old thread. But can FNSOX be set up like a Core Account?

Or, can it be set up to automatically move money into FNSOX when the core account is above a set level and move money from FNSOX into the core when the core is too low?

I am asking if there is a way to automate -- set it and foreget it? Or do you need to monitor.

The ER differences maybe worth doing this.

FNSOX is a short-term bond fund. It can't be a "core" position, which is Fidelity's term for the accounts settlement fund.
My post you're responding to was talking about money to be set aside for a couple years. Explicitly not money you expect to be available to go in-out of on the regular basis.
It is a mutual fund, and Fidelity allows you to create automatic transactions transferring money in or out of mutual funds, but (as far as I know) only preset dollar amounts and a specific calendar schedule. Being a non-money market mutual fund, there is a settlement period after selling shares before the cash is available to withdraw, and it's also subject to market/interest rate risks with the value fluctuating based on current rates.
Trading in-out of a bond fund can also generate wash-sale issues, and while I think the short-term bond funds are exempt from it, Fidelity does lock-out frequent traders from frequent trading in their funds to prevent them from impacting the long-term holders.

Thanks.

I am willing to take a little more risk to save on ER. In as bad a year you can get, FNSOX was down 4 percent. That is the risk. The holding of FNSOX and some money market funds have considerable overlap. And you can benefit from that risk if things go a different direction.

What I am not willing to do is constantly monitor my account that I do checking from and move money in, out, etc. Frequently trade policies are a hassle. And one overdraft fee mishap, and there goes a good chunck of the ER savings benefit.

Perhaps short term government ETF? IDK. Probably best to leave it.

[JoMoney]

...
So I think a more realistic (but unlikely) tail risk is something like: you could lose a few percent, and it could take you 1-2 years to get most of the rest back.

Personally, for money I might be willing to accept the risk of it being frozen for 1-2 years, I'd just assume have it in a bond fund.
Fidelity's Short-Term Bond Index fund (FNSOX) current yield to maturity is something like 4.36% (and a very low .03% ER.) The duration for that fund is 2-3 years.

I realize this is an old thread. But can FNSOX be set up like a Core Account?

Or, can it be set up to automatically move money into FNSOX when the core account is above a set level and move money from FNSOX into the core when the core is too low?

I am asking if there is a way to automate -- set it and foreget it? Or do you need to monitor.

The ER differences maybe worth doing this.

FNSOX is a short-term bond fund. It can't be a "core" position, which is Fidelity's term for the accounts settlement fund.
My post you're responding to was talking about money to be set aside for a couple years. Explicitly not money you expect to be available to go in-out of on the regular basis.
It is a mutual fund, and Fidelity allows you to create automatic transactions transferring money in or out of mutual funds, but (as far as I know) only preset dollar amounts and a specific calendar schedule. Being a non-money market mutual fund, there is a settlement period after selling shares before the cash is available to withdraw, and it's also subject to market/interest rate risks with the value fluctuating based on current rates.
Trading in-out of a bond fund can also generate wash-sale issues, and while I think the short-term bond funds are exempt from it, Fidelity does lock-out frequent traders from frequent trading in their funds to prevent them from impacting the long-term holders.

Thanks.

I am willing to take a little more risk to save on ER. In as bad a year you can get, FNSOX was down 4 percent. That is the risk. The holding of FNSOX and some money market funds have considerable overlap. And you can benefit from that risk if things go a different direction.

What I am not willing to do is constantly monitor my account that I do checking from and move money in, out, etc. Frequently trade policies are a hassle. And one overdraft fee mishap, and there goes a good chunck of the ER savings benefit.

Perhaps short term government ETF? IDK. Probably best to leave it.

I would use a Government money market fund, that doesn't have the potential liquidity/control gate risks, for the bulk of any money I thought might in any case be needed in a 6 month or less period.... and be more open to exploring the use of a short-term bond fund for slightly longer term cash savings. It really shouldn't require close monitoring or making any exchanges out of the bond fund unless a rare emergency. If the liquid cash in the money market fund gets extra large, once or twice a year move a chunk over to the bond fund.
At least that would be my preference over putting all of it into a "Prime" money market with the risk that all of it could suddenly be made unavailable or with some fee/control gate.
"Probably best to leave it" make some sense to. Too much fiddling, especially for what might be trivial amounts on the edges, can be a problem to.

[stocknoob4111]

I am holding about $75k in SPRXX, I am assuming non zero risk but almost close to zero simply because I am assuming risk consistent with other MM funds.

Anyone else holding their short term cash in SPRXX?

[PatrickA5]

I am holding about $75k in SPRXX, I am assuming non zero risk but almost close to zero simply because I am assuming risk consistent with other MM funds.

Anyone else holding their short term cash in SPRXX?

Yes. I have SPRXX at Chase and Fidelity. Using FZDXX for one of my Fidelity accounts. I have no worries. Like you said, it's "close to zero" risk.

[Lemonaid56]

I am holding about $75k in SPRXX, I am assuming non zero risk but almost close to zero simply because I am assuming risk consistent with other MM funds.

Anyone else holding their short term cash in SPRXX?

Yes. I have SPRXX at Chase and Fidelity. Using FZDXX for one of my Fidelity accounts. I have no worries. Like you said, it's "close to zero" risk.

Are there actually any gains from holding these two MM funds? There are expense ratios tied to them that don't exist in SPAXX so doesn't that make your "cash" decrease?
Trying to decide if we should put our years expenses cash into those accounts instead of SPAXX. We have enough to get into FZDXX but will there be any type of real gain to make it worth while?

[technovelist]

I have my cash in FDLXX with a core position in FZFXX because FDLXX can't be set as the core account. When I take money out of my account Fidelity automatically sells FDLXX as necessary.
I see no reason to take any avoidable risk with my cash.

[Tom_T]

I am holding about $75k in SPRXX, I am assuming non zero risk but almost close to zero simply because I am assuming risk consistent with other MM funds.

Anyone else holding their short term cash in SPRXX?

Yes. I have SPRXX at Chase and Fidelity. Using FZDXX for one of my Fidelity accounts. I have no worries. Like you said, it's "close to zero" risk.

Are there actually any gains from holding these two MM funds? There are expense ratios tied to them that don't exist in SPAXX so doesn't that make your "cash" decrease?
Trying to decide if we should put our years expenses cash into those accounts instead of SPAXX. We have enough to get into FZDXX but will there be any type of real gain to make it worth while?

The price is a dollar, it never changes. The yield on FZDXX is 4.47%. SPAXX is 4.18%. That's $290 on a $100K investment over a year's time. You can decide if that is enough of a difference to you, or not. I don't have a history, but my perception is that SPAXX is 'catching up', i.e. FZDXX doesn't have as big an advantage as it did a couple of months ago. That's just perception, though.

[jeffyscott]

There are expense ratios tied to them that don't exist in SPAXX so doesn't that make your "cash" decrease?

SPAXX has an ER of 0.42%, which is the same as that for SPRXX and higher than that for FZDXX. In any case, the yields already accounts for the ERs.

[Lemonaid56]

There are expense ratios tied to them that don't exist in SPAXX so doesn't that make your "cash" decrease?

SPAXX has an ER of 0.42%, which is the same as that for SPRXX and higher than that for FZDXX. In any case, the yields already accounts for the ERs.

It sounds like from the responses my concerns are unfounded and not to worry about. Just wanted a safe place to park spending money for the year. Seems like this is a good choice rather than sitting in the bank earning far less interest.
Thank you all for your thoughts.