Zeros for cash?
Posted: Tue Mar 27, 2018 9:15 pm
Is it OK (PP-wise) to buy 1 yr zero coupon Treasurys and hold them in the Cash portion of the PP?
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Sophie, do you pay short term capital gains tax on 1 year zeroes?sophie wrote:1 year zero coupon Treasury - otherwise known as Treasury bills.
Yes, that's a a canonical product for the cash portion, plus it just happens to be beating just about any cash investment out there with a similar time to maturity.
ochotona wrote:Sophie, do you pay short term capital gains tax on 1 year zeroes?
Good question! Short term cap gains and interest income are the same tax rates, no? The interesting question is whether you'd get long term gains on a 1 year bill. I would think not, but has anyone has bought 1 year treasuries in taxable? I've only done 3 months so far. If so, that would make a 1 year Treasury the slam-dunk winner, instead of just THE winner in the Best Cash Return for a 1 Year Duration contest.ochotona wrote:Sophie, do you pay short term capital gains tax on 1 year zeroes?sophie wrote:1 year zero coupon Treasury - otherwise known as Treasury bills.
Yes, that's a a canonical product for the cash portion, plus it just happens to be beating just about any cash investment out there with a similar time to maturity.
One year bills earn interest. I use Vanguard, and they calculate it for you, since you're not buying them at the original issue discount.sophie wrote:Good question! Short term cap gains and interest income are the same tax rates, no? The interesting question is whether you'd get long term gains on a 1 year bill. I would think not, but has anyone has bought 1 year treasuries in taxable? I've only done 3 months so far. If so, that would make a 1 year Treasury the slam-dunk winner, instead of just THE winner in the Best Cash Return for a 1 Year Duration contest.ochotona wrote:Sophie, do you pay short term capital gains tax on 1 year zeroes?sophie wrote:1 year zero coupon Treasury - otherwise known as Treasury bills.
Yes, that's a a canonical product for the cash portion, plus it just happens to be beating just about any cash investment out there with a similar time to maturity.
I started doing the same thing (VSBSX, the equivalent of VGSH) when you mentioned that minimum in the past. I mean, I was able to buy real T-bills in small amounts, but I didn't realize I might be getting a worse rate without doing $100,000.Kriegsspiel wrote:I'd been buying 1 year bills for years, but I've been switching to VGSH (Vanguard's 1-3 year Treasury ETF) as they mature. I found the yields on bills with an acceptable minimum buy amount is too low to be worth the hassle anymore.
It looks like VSBSX has an expense ratio of .07%. I THINK that more or less offsets any hit you take by buying smaller lots of T-Bills. For example, when I bought some bills at Fidelity recently, the "list price" in their one-year bill area was 2.13%, but when I hit "depth of book" I ended up getting about 2.06% for my smaller lot (didn't have the $50,000 or $100,000 I needed to avoid that). One can see that actual yield right before hitting the execute trade button.dualstow wrote:I started doing the same thing (VSBSX, the equivalent of VGSH) when you mentioned that minimum in the past. I mean, I was able to buy real T-bills in small amounts, but I didn't realize I might be getting a worse rate without doing $100,000.Kriegsspiel wrote:I'd been buying 1 year bills for years, but I've been switching to VGSH (Vanguard's 1-3 year Treasury ETF) as they mature. I found the yields on bills with an acceptable minimum buy amount is too low to be worth the hassle anymore.
Yea, that's what I looked at previously (I think it was Xan on the other side of the discussion). I'm fine with paying Vanguard the ER, they can take care of all the details. If the yield on individual bills ever looks attractive vs the yield - ER of VGSH I would just switch back.barrett wrote: It looks like VSBSX has an expense ratio of .07%. I THINK that more or less offsets any hit you take by buying smaller lots of T-Bills. For example, when I bought some bills at Fidelity recently, the "list price" in their one-year bill area was 2.13%, but when I hit "depth of book" I ended up getting about 2.06% for my smaller lot (didn't have the $50,000 or $100,000 I needed to avoid that). One can see that actual yield right before hitting the execute trade button.
To answer Sophie's question, yes, I have started buying one-year bills but won't see what the tax treatment is on them until early 2020 as the first one will mature in early 2019. And by 2020 I will have forgotten to pay attention!
Like I said, at Vanguard when the bill mature, $1,000 is deposited in your settlement fund. Then you buy another bill for $997 or whatever. When it matures, $1,000 in the settlement fund again. When Vanguard spits out your 1099 it will have added up all the interest for you. If you sell them Vanguard calculates your capital gains/loss. Are you guys saying something I'm not getting?Mr Vacuum wrote:The irony of a clear answer about precise tax treatment of 1 year tbills not yet appearing in this thread amongst analyzers and tweakers is a bit much considering they were Harry Browne’s clear and simple recommendation for one fourth or the portfolio
Indeed, I previously switched from funds to bills in taxable thinking it would mean less capital gains to think about and report since i was not selling but holding to maturity (but apparently didn’t check for sure??). I’ve got some maturing in July, so I’ll see how Fidelity classifies the gains then.
I was just manually updating the price of the bill in my spreadsheet whenever I calculated my NW. I do that for my individual long bonds too.MangoMan wrote:How exactly does one track the price of individual treasuries on google sheets? Will google finance pull the value from cuspis?barrett wrote: I do like the idea of having just one cash position in any account, as it's much easier to keep track of than a T-Bill ladder.
I am thinking about switching, as IL does not allow for the US Treasury state income tax exemption if they are held thru mutual funds or ETFs.
If you're referring to my comment, that was for bonds bought on the secondary market through Vanguard, not at auction through Treasury Direct.sophie wrote:Interesting, I wasn't aware of the reduced yield for small lots of T bills bought at auction.
That could very well be, Barrett, that the expense ratio is even worse. Perhaps it's a "the devil you know" situation. Kind of a funny thing to say, coming from someone who buys at auction. I suppose I could do it your way- buy secondary and know the yield. I guess I'm comfortable now, letting VSBSX do its thing, and just adding to it as my T-Bill rungs are redeemed. And, like Kriegs, I could always go back.barrett wrote:It looks like VSBSX has an expense ratio of .07%. I THINK that more or less offsets any hit you take by buying smaller lots of T-Bills. For example, when I bought some bills at Fidelity recently, the "list price" in their one-year bill area was 2.13%, but when I hit "depth of book" I ended up getting about 2.06% for my smaller lot (didn't have the $50,000 or $100,000 I needed to avoid that). One can see that actual yield right before hitting the execute trade button.
Sorry, Kriegs, I missed your post when I wrote that. Or else it didn't compute at first because you said the bills pay interest, while I'm looking at "ZERO CPN" thinking that can't be interest.Kriegsspiel wrote:Like I said, at Vanguard when the bill mature, $1,000 is deposited in your settlement fund. Then you buy another bill for $997 or whatever. When it matures, $1,000 in the settlement fund again. When Vanguard spits out your 1099 it will have added up all the interest for you. If you sell them Vanguard calculates your capital gains/loss. Are you guys saying something I'm not getting?Mr Vacuum wrote:The irony of a clear answer about precise tax treatment of 1 year tbills not yet appearing in this thread amongst analyzers and tweakers is a bit much considering they were Harry Browne’s clear and simple recommendation for one fourth or the portfolio
Indeed, I previously switched from funds to bills in taxable thinking it would mean less capital gains to think about and report since i was not selling but holding to maturity (but apparently didn’t check for sure??). I’ve got some maturing in July, so I’ll see how Fidelity classifies the gains then.
Not a tax expert at all but, I think you may be confusing interest income with capital gains. I believe the interest income on treasuries would be reported as 1099-INT income, and that the tax treatment on that income is dependent on your marginal tax rate for that particular year.Mr Vacuum wrote:Looking at my Fidelity tax info in more detail, I can confirm zero cpn bills listed under "Interest on U.S. Treasury Bonds & Notes" but no capital gains, just as you describe. The bills were a mix of secondary market purchases and auction purchases with maturities of 6 months or less, all but a few held to maturity. Now what I'm not connecting is that even the few bills I sold don't list capital gains--that part doesn't add up.