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Parking Profits with HIGH and SGOV: These Funds Are Paying Up Big Time!

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Parking Profits

I’ve got a couple of funds that I use to stash away my “dry powder” cash, money that’s earmarked for a future investment opportunity. While I’m willing to take a bit of risk with this cash, I need the investments to be relatively stable so that when the right opportunity comes knocking, I can seize it.

To this end, I don’t want money-market volatility, but I’m not comfortable with a standard deviation of over 4%.

This is different from the cash that moves around my account due to stock and options transactions, which I’ve got parked in the Fidelity Government Money Market Fund (SPAXX). I highly recommend this fund as a solid default core holding on Fidelity.

The two funds I’ve got my eye on are:

The iShares 0-3 Month Treasury Bond ETF (NYSEARCA:SGOV) and the Simplify Enhanced Income ETF (NYSEARCA:HIGH).

Cash park investors are absolutely thrilled about this new “higher for longer” macro environment. These funds are now dishing out yields of over 5% and it’s music to our ears!

According to the Fed, this party could continue for another year above 4%, followed by another year around 3% in 2026. However, who knows what happens when the Fed’s plans meet reality! Now that’s a story for another day.

Dry Powder Dilemma

Having cash stashed away in conservative ETFs or money market funds for future investment opportunities hasn’t exactly been a lucrative move in the last decade. The total return from 2010 to 2023 for money market investors was a measly 12.37%, which rounds up to just 0.95% per annum.

If you were willing to take on a bit of beta with short-term corporate bonds, the results were slightly better, but the ride was far bumpier. That’s not acceptable for most folks parking their cash.

However, the game has changed now that rates have surged to 5%, the highest we’ve seen in a long time. And according to the Fed, they plan to keep rates here for some time, making these cash vehicles suddenly much more appealing.

Investors caught in the cash trap are riding high now that these funds are sprouting 5%+ yields. The question is, will this party go on for long or will it be a fleeting moment?

iShares 0-3 Month Treasury Bond ETF — (SGOV)

Last time I talked about SGOV, I gave it a strong buy. And you know what? It’s performed exactly as expected since then!

The whipsaw in the chart tells the story. The fund drops when dividends are paid out, then picks up as the month progresses until the next payment rolls around. It’s a rinse and repeat cycle.

SGOV is a fund that holds T-Bills, treasury bonds that mature within a 90-day timeframe. These bonds are stable, predictable, and they are currently doling out the highest dividend yield of the maturity ranges iShares ETFs offer.

T-Bills are the least risky treasuries to own, and treasuries are considered the least risky bonds overall. It’s a win-win situation for short-term cash holdings – low volatility and high dividends, what’s not to love?

It’s important to note that SGOV’s distributions (along with ~5% of HIGH’s yield) are exempt from state taxes since they are coupons from treasuries. This means that my after-tax return for SGOV is higher than my return would be with a money market like VMFXX, which. . .

Unleashing the HIGH ETF: A Fiery Review of Simplify Enhanced Income ETF (HIGH)

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