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. 😉