Fidelity SPAXX. Dump This Expensive Money Market and Do This Instead.

About this video

• Video Title: Fidelity SPAXX. Dump This Expensive Money Market and Do This Instead.
• Channel: HighPass Asset Management
• Speakers: [No speaker names mentioned in the transcript]
• Duration: 00:05:20

Overview

This video explains why Fidelity's SPAXX money market mutual fund is an expensive and tax-inefficient option for holding cash. It highlights the hidden fees and tax implications, proposing T-bills purchased directly from Treasury Direct or the iShares ETF SGOV as superior, lower-cost, and more tax-efficient alternatives.

Key takeaways

• High Fees: Fidelity's SPAXX fund charges an annual fee of 0.42%, which is hidden within the mutual fund and not directly visible on statements, costing investors significantly over time.
• Tax Inefficiency: In 2024, only 55% of SPAXX's ordinary dividend was generated from U.S. government securities, meaning 45% was derived from repos, which are taxable at the state level.
• Alternative 1: T-Bills: Purchasing T-bills directly from Treasury Direct eliminates middlemen and fees, saving investors the 0.42% annual cost associated with SPAXX.
• Alternative 2: iShares ETF SGOV: This ETF is an all T-bill ETF that costs only 0.08% annually and is 100% tax-free at the state level, making it a more desirable option than SPAXX.
• Cost Comparison: For a $1 million investment, SPAXX costs $4,200 annually in fees, while SGOV costs only $800, making SGOV 80% cheaper.
• Tax Impact: The taxable portion of SPAXX's dividend can lead to significant state income tax liabilities, whereas SGOV's dividends are entirely state tax-exempt.