Trading account Idle cash

[Leroy_tabane]

Hi, I have a 12 000$ trading account with Interactive Brokers. I am usually more than half in cash, sometimes all in cash. My account is too low for them to pay interest on it. I know I could switch brokers, but I am also looking for another solution witch is sometimes referred to "swept vehicle". I could for example put the idle cash into a bond ETF from what I read, very short term bonds ETF would be the way to go. Like Vanguard short term bond ETF $VSB.TO   I know very little about bonds and I am just looking to put my idle money somewhere relatively safe that could bring a little interests while it's waiting. Unless I don't understand something, I feel I need to find something with very little volatility, high liquidity and steady dividend. 

Any leads would be much appreciated, thanks! Also, any suggestions on where I can educate myself on bonds and ETF's and how they work?

Leroy

[MustacheAndaHalf]

Vanguard's Federal Money Market fund pays 0.02% per year, which would amount to about $1.20 on $6,000.  Why are you focused on the cash returns, instead of being invested in equities?

The 1 year performance of the S&P 500 was +18%, or 900x higher than the above money market fund.  That return is higher than average, but not rare.  Are you using IBKR for investing, or some other purpose?

Why not buy a total stock market ETF (VTI, ITOT, SCHB) or S&P 500 ETF (SPY, VOO, IVV) and leave it to grow?

Mutual funds pool investor's money to buy stocks.  With $12,000 it would be difficult to buy 500 different stocks - even harder to buy the 3700 stocks in ITOT or VTI.  But the fund or ETF does that for you, and you can then just buy shares of the fund or ETF.

[Financial.Velociraptor]

You might consider municipal bond funds including those operating as closed end funds.  You can realistically make 4-5%/yr federal tax exempt in one of the safest asset classes around.  Alternatively, a closed end preferred shares fund might pay 7-8% with little downside risk (but taxable).

I keep an allocation to IQI and NEA.  which are currently yielding 6.2% and 4.6% fed tax exempt.  They have been steady eddies since 2015 for me.

[Leroy_tabane]

I thought about putting my money in an S&P index since returns are great but the only issue I see is like we recently had, when a crash occur. The way I see it, if i'm in the S&P and it crash, I have to wait for a recovery before pulling my money out or else I loose. And so far, I'm more invested right after a crash. I have an IBKR account and I use it for trading, learning and refining a strategy. Like right now, I only have one 1000$ position on my 12 000$ account so the remaining is sitting there doing nothing and it bothers me. Maybe I will try to put a good portion of it in an index fund and see how I like it. I know there is not one perfect solution and I need to try stuff to find what suits me. Thanks for the comment, it's helping me!

[MustacheAndaHalf]

The way I see it, if i'm in the S&P and it crash, I have to wait for a recovery before pulling my money out or else I loose. And so far, I'm more invested right after a crash.

If you like reading, "A Random Walk Down Wall Street" might help you sort of "gain a level" as an investor.  If it's too long, "The Investment Answer" is much shorter but has similar key information and data.  Most libraries should have one or both. When I read "A Random Walk Down Wall Street", I internalized the data showing active vs passive results, and about stock market history.  That has helped me.

If you're worried about a crash, consider the longer time frame of a decade.  When you view stock return data over that time, you can see a crash - but also a recovery.  When you hear the stock market hit new highs, that means all of the past crashes have been overwhelmed by recoveries, and gains.

[Leroy_tabane]

Thanks @MustacheAndaHalf , I listened to it on Audible already but I will do it again with this perspective in mind.

[reeshau]

Discount brokers make a significant percentage of their profits from idle cash in customer's accounts.  For Interactive Brokers, it was 35% of earnings, $195M.  (This is actually down from last year)  You might think of it as idle cash, but they are using it to make money.  If you know it will be idle, you would be better off putting it with an online bank like Ally--at least they are paying 0.5% now--more than 10x what your broker will pay.  You can set up an external connection between the banks and transfer it back in 1 day if you want to invest it.

[Leroy_tabane]

For now, I put a good chunk of it in $VSB as I like the low volatility. It should bring back 1-2% a year on a very low risk witch is better than nothing and something I am comfortable with for the real purpose of this account, witch is to look for rare "gems" that will rocket 1000% on me ;) What? I'm looking for fat pitches so there is a lot of waiting on the sidelines. Now I can wait with 1.5% return instead of ...0%  You guys have helped me here and I thank you. I will keep monitoring for better options but I feel I took a step in a good direction so it's a good thing.