A relook at cash investment options at WellsTrade

I have a Wells Fargo PMA / Wellstrade account package to take advantage of their 100 free trades a year offer. When the account was first opened, Wellstrade offers several reasonable money market funds (MMF) as cash sweep options. These MMFs were however discontinued at the end of July 30, 2007, and the new cash sweep option has a very lousy yield (1.01% APY for amounts less than $100,000) unless you are keeping a lot of cash in it.

I responded by manually buying into WFGXX (Wells Fargo Government MMF), which is listed as an NTF (no-transaction-fee) mutual fund. This fund has an expense ratio of 0.64%, with a current 7-day yield of 3.87%. This is definitely better than the 1.01% APY from the default cash sweep option.

Recently, I became aware that there is another option. According to this post from FWF, Wellstrade also offers the RMMXX (Frank Russell Institutional) MMF for no transaction fee. This MMF has an expense ratio of 0.15% and a current 7-day yield of 5.05%. This yield is an improvement of almost 1.2% from WFGXX. A buy or sale transaction also does not appear to count towards using one of the free trades (see the messages that follow from the FWF link).

One issue in general with using MMFs in the above fashion for non-margin or IRA accounts is that since MMF trades typically settle on the next business day, I cannot purchase a stock or ETF on any day I want. I always need to plan ahead by liquidating the MMF one business day before the planned purchase. This could sometimes be inconvenient. However, the interesting thing is that unlike MMF sales, the proceeds from a stock or ETF sale is available immediately to purchase another stock or ETF.

With the above in mind, I think my new strategy will be to keep most of the cash balance in RMMXX. I will however keep a small portion in a very short term bond ETF, like SHV (iShares Lehman Short Treasury Bond ETF). This ETF can be liquidated whenever needed to allow me to purchase a stock / ETF on any day I want. The income distributions from SHV will be reinvested into RMMXX once a month. The minimum initial and subsequent investment for RMMXX appears to be just $1.

One possible issue is the trading cost associated with this short-term ETF. It appears however that the impact on any trading spread of this ETF is very small. Currently, the spread is only one cent out of ~$110, giving a spread of less than 1 basis point (0.01%). With a spread this small, I would not worry about it. However, nevertheless, there is a disadvantage; and that is it will use up one of the free trades.

Oh, well, you have to give up something. 😉

2007-12-21-shv-spread.png

11 Comments

  1. Dave

    I started using SHV as a MMF substitute ever since WellsTrade changed their cash sweep policy/options. It has worked out great. Thanks for the heads up on RMMXX.

    Reply
  2. indexfundfan (Post author)

    Dave, that’s good to know.

    Reply
  3. Ivan

    indexfundfan,

    I’m looking for a software package to manage my portfolio (something more sophisticated than Quicken), so I would like to know the name of the application from which the screenshot in your post was taken? Is this something you wrote yourself or something that is commercially available?

    Ivan

    Reply
  4. Mike

    Just enable margin on your account. Then you can buy before the cash is available from the MMF sale.

    Reply
  5. indexfundfan (Post author)

    Ivan, the following POST discusses briefly what I used.

    Reply
  6. indexfundfan (Post author)

    Mike,

    It is true that with margin-enabled you can buy before the cash is available. However, this does not work for my IRA.

    For my taxable account, in fact I do not even bother to leave any cash there. I withdraw the money into Fidelity as soon as it is available.

    Reply
  7. SaRa

    indexfundfan,

    I am planning on buying RMMXX as cash sweep option for my WellsTrade traxable account after reading your blog.

    I have some money in each of the following:

    1. Wells Fargo Cash Sweep – FDIC
    2. Money Market Funds (old sweep account – WF Adv Treasury Plus Money Market Fd-Cl A)
    3. Accrued Interest/Dividends

    My question is,

    If I have to buy RMMXX, do I need to sell fist WF Adv Treasury Plus Money Market Fd-Cl A and also Wells Fargo Cash Sweep – FDIC ?

    Can I add up all the above Cash and Equivalents (eg, 1+2+3) and buy RMXX?

    Would appreciate if you could answer my queries Thanks in advance.

    Reply
  8. indexfundfan (Post author)

    SaRa,

    For 1, I am 100% sure you can.
    For 2, since this was old sweep option, you technically also do not need to sell it.

    So, you can add up 1 and 2 to buy RMMXX.

    For 3, I am not so sure. But, usually if 1. and 2. are zero-ed out, the accrued dividends will be deposited directly into your account. At that point, you can buy RMMXX since the minimum subsequent investment is only $1.

    Keep a lookout for the ‘free trade’ counter. I believe RMMXX does not count as one trade but track it to be sure with your initial investment. This will help you decide if you want to purchase the subsequent investment if it costs you one free trade.

    Reply
  9. Pingback: indexfundfan @ indextown » Blog Archive » RMMXX no longer NTF at WellsTrade

  10. Sean

    I tried to follow your suggestion on keeping my cash in RMMXX. But I got an error message saying the purchase is not allowed for WellsFargo Investment Accounts. Are you having the same problem? Thanks!

    Reply
  11. indexfundfan (Post author)

    Sean, Wells Trade has stopped investors from buying RMMXX. It happened some time last year.

    Reply

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