Wednesday, April 11, 2007

Money Market Fund Options for TD Ameritrade

The series of posts that I made about my experiences with TD Ameritrade have been very popular at PFStock. Perhaps the most popular of my posts was the one where I exposed Ameritrade's "Hidden" cash sweep account. I have recently come across another cash (money market) option for TD Ameritrade account holders. This is another fund offered through "The Reserve" (website: ther.com).

The fund is called the Reserve Yield Plus Fund Class R (symbol: RYPQX), and is classified by The Reserve as an "enhanced cash fund". Currently, this fund pays in the neighborhood of 5.4% APY. This rate is much better than the default TD Ameritrade cash option which puts you in a sweep account that pays less than 1% interest.

However, unlike the other Reserve funds (offered through Ameritrade's Total Asset Plan) that I've talked about before, this fund is not available as a sweep option which automatically places your uninvested cash into a money market account. Instead it is traded like a No-Transaction Fee (NTF) mutual fund. You would need to put in a mutual fund order each time that you want to buy or sell the fund.

Now I have a few questions for my readers. Has anybody invested in this type of enhanced cash fund before? Do you need to report each mutual fund sale (each time you take money out of the fund) as a broker transaction on Schedule D of your tax return? Presumably, the fund tries to maintain a $1/share valuation, and each transaction would represent $0 in capital gains. And, does anybody know if TD Ameritrade would count each NTF transaction toward qualification for their premier (or APEX) trading status?

I suppose that I would be remiss if I didn't add that The Reserve Yield Plus Fund contains the following disclaimer:
This Fund is not a money market fund. Achievement of the Fund’s objectives cannot be assured. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund. Yields may vary.

PF Stock

1 comment:

Jay said...

The Reserve account has a 1% expense ratio, so you have to deduct that from the APY. I don't know what they do to earn this 1%; I'm still trying to figure out what this account is and what the risks are.