Personal Finance

Why Are Muni Money Market Yields Volatile?

Several people have asked me recently why the yield on muni money market funds changes so much. The answer is very simple, but its not intuitive at all and requires an understanding of how municipal money market mutual funds invest. Read on to learn why muni money market yields are so volatile and move up and down frequently.

The Short Answer

Taxable money market funds own short-term debt instruments (such as commercial paper, CDs, and so on), typically with maturities of a few days or a few weeks. However, tax-exempt muni money markets typically hold variable rate demand notes (VRDNs) or variable rate demand obligations (VRDOs). The nuances of these instruments their market dynamics is responsible for the volatile yields.


These VRDNs and VRDOs are essentially long-term debt instruments issued by municipalities. Even though the terms and maturities are long-dated, the rates reset very frequently. Thus, their duration is close to zero which makes them investable for money market funds.

Low Duration

Additionally, VRDOs have a “put” feature, which means that investors can redeem at any time. In other words, most muni funds hold very long maturities, but the rates are variable and duration is very short due to rate resets and put features.

Supply & Demand (…and Regulation)

Municipal securities and related muni money market fund yields have long been more volatile than their taxable counterparts, but that volatility has increased in recent years. Part of the reason Muni yields go up and down is supply and demand dynamics, which is partially driven by regulatory changes and concerns.

Historical Yield Chart: Muni Money Market

As example, let’s look at Schwab’s flagship muni money market fund SWTXX. Below is a chart of the fund’s subsidized 7-day yield during the first half of 2023. The yield has swung all over the place from approximately 1.5% in February to nearly 4% in March. Depending on when an investor checked the fund website, the fund either looked great or terrible. It may not be surprising that the peaks tend have corresponded with quarter-ends when fact sheets are published…

Source:, Bloomberg

How To Invest in Muni Money Market

So what yield should investors look at and base decisions on? My approach is to assume an average yield, since we know that the stated yield on any given day is not representative of what an investor will receive. In the below chart, I’ve plotted 20-day, 30-day, and 50-day moving averages. Each moving average falls between 2.75% and 3%. I would not invest in this fund based on a 2% yield or a 4% yield (since muni yields are moving up and down so much), but I would base my decision on ~3% yield.

Source:, Bloomberg

Comparing Muni Money Market Funds

The volatile yields of muni money market funds can make selecting one a more challenging task. Investors need to do a bit of homework beyond simply selecting a muni fund with the highest yield. Below are some examples:

Muni Yield vs Taxable Yield

Taxable money market yields are reflective of market rates and tend to move more gradually based on the broader level of rates in the economy. This is of course influenced by policy rates, benchmark rates, and other factors, but the end result is more gradual changes in rates (compared to muni money markets).

In the below example, we can see that the muni money market (SWTXX) yield is relatively close to the taxable (SWVXX) yield as of late February (and the tax-equivalent muni yield was higher for many investors). However, the muni yield (and the tax-equivalent muni yield) was much lower than the taxable yield by mid-March. So finding the better after-tax yield is largely a function of when an investor observes the yield data. Again, I would review the average yield and then adjust for the tax benefit (rather than just calculating the tax benefit on any given day’s yield).

Source:, Bloomberg

Muni Yield vs Muni Yield

Comparing muni money market funds can be challenging because the muni yields are so volatile. Rather than comparing a volatile yield to a more gradually changing yield, one must compare two volatile yields to one another.

Consider the below example of SWTXX (a Schwab muni money market) vs FTEXX (a Fidelity muni money market). If one checked yields in early July, then FTEXX was the higher yielding fund. If one checked in late July, then SWTXX was the higher yielding fund. So which one should investors select? Personally, I would compare the moving averages and go with the fund that has the highest yield on average.

Source:, Bloomberg

Bottom Line

The bottom line is that muni money market yields are quite volatile and the stated yield that investors find on a fund website is not indicative of the return that they will receive (since muni yields move up and down so much). My approach is to find the yield history, calculate an average yield or estimate the future yield, and then make a decision. Even investing in cash equivalents can be as much art as science!

Common Investing Mistakes

Common Investing Mistakes

Investing can be a powerful tool for wealth creation and financial security, but it is not without its pitfalls. The journey to becoming a successful investor is often marked by learning from past mistakes and adjusting strategies accordingly. Below are some common investing mistakes that I’ve seen and I hope readers who are new to the world of investing avoid these potential mistakes.

Some investors jump into the market without first educating themselves on the basics of investing. Others may be swayed by emotions or swamped under the influence of their cognitive biases. It is important for investors to understand these common errors and implement strategies to mitigate them.

Investing without a plan

One common investing mistake that I see is beginning to invest without a clear plan. Some people start purchasing a few stocks or funds based on the recommendations of friends, family, or media sources. However, without a concrete strategy, they may struggle to manage their investments effectively.

A well-thought-out investment plan outlines an investor’s financial goals, risk tolerance, and time horizon. It helps them choose appropriate investments that align with their objectives and comfort level. A plan serves as a framework, helping investors to understand each decision within the larger context.

Having an investment plan and reviewing it periodically can help investors stay on track and make necessary adjustments as their circumstances change. This proactive approach enables them to manage their wealth in a controlled manner, without being swayed by market fluctuations or emotional decisions.

Insufficient Diversification

Another very common investing mistake is insufficient diversification. This occurs when an investor’s portfolio is heavily concentrated in a single asset class or sector. Diversification is crucial because it helps reduce the overall risk associated with a portfolio by spreading investments across a range of asset classes and sectors.

For example, if an investor’s portfolio comprises primarily technology stocks, they may be exposed to significant risk if the technology sector experiences a downturn (read my review of VTI vs QQQ for a very simple example of this). To mitigate such risks, it’s advisable for investors to diversify their holdings with a mix of stocks, bonds, and other investment vehicles.

Below are just a few dimensions of diversification, but there are many more:

  • Asset allocation: This involves allocating a portfolio among various asset classes like equities, bonds, and cash equivalents. By maintaining a balanced portfolio, investors can lessen the impact of a poor-performing asset class on their overall returns.
  • Geographic diversification: Investing in multiple countries and regions can provide an additional layer of protection. Different economies may perform differently at various times, shielding investors from the negative impact of a single market downturn.
  • Sector diversification: This practice entails diversifying among different industries or sectors, such as financial services, healthcare, or consumer goods. Different sectors may have distinct performance patterns, and a well-diversified portfolio can benefit from the positive performance of various industries.
  • Investment style diversification: Some investors may benefit from diversifying across various investment styles, like growth, value, or dividend investing. This can offer exposure to companies with diverse characteristics and minimize the impact of poor performance in a particular investment style.

By employing sufficient diversification, investors can reduce volatility, weather market fluctuations more effectively, and better protect their capital against adverse events.

Ignoring Costs and Fees

Unfortunately, ignoring the costs and fees associated with various investment vehicles is too common. Expenses can significantly impact an investor’s overall returns in the long run, particularly in situations where the fees are ongoing or compound over time.

Many funds have an expense ratio, which are annual expenses paid by investors (expressed as a percentage of their assets). These fees can vary widely, with some index funds charging 0%, while some actively managed funds can charge upwards of 1%-2% (or more). Over time, these seemingly small percentages can make a substantial difference in an investor’s portfolio.

When it comes to trading individual stocks, investors should also be mindful of transaction fees. Many brokerage firms offer low-cost or commission-free trades, but some may still charge per-trade fees, especially for options or ADRs. Ignoring these fees can add up in cases when investors are actively trading in and out of positions.

By paying close attention to costs and fees, an investor can make informed decisions that take into account the potential impact on their overall returns. This awareness will help them avoid the trap of ignoring these essential aspects of investing and avoiding these common investing mistakes.

Emotional Investing

As humans, many investors tend to make decisions based on their emotions rather than focusing on objective financial analysis. They might buy or sell assets due to fear, greed, or other strong feelings rather than considering the underlying fundamentals of the investment.

An investor’s emotions often take the front seat during market fluctuations. For instance, they might be tempted to sell a position during a brief market downturn. This panic selling can lead to poor investment results, as many investors sell at a lower price and purchase at a higher price which is not a logical approach.

Sometimes investors become overly attached to a particular company or security. Perhaps they have an emotional connection or loyalty to the brand that clouds their rational judgment. This bias can lead them to hold onto the investment for too long, even when its value declines or it’s no longer strategically relevant within their portfolio.

It is essential for investors to be aware of their emotions and develop strategies or accountability to keep them in check. By doing so, they can improve their overall investment decision-making process and be less susceptible to common investing mistakes.

Chasing Past Performance

One common investing mistake is chasing past performance. Investors often examine the historical returns of a stock or fund and assume that it will continue to perform similarly in the future. However, past performance is not necessarily indicative of future results.

There are several reasons investors should not rely solely on past performance when making investment decisions. First, the market is constantly changing, and factors that may have contributed to a specific stock or fund’s success in the past may no longer be relevant.

Timing the Market

A related investing mistake is attempting to time the market. This occurs when investors try to predict when the market will rise or fall, buying or selling investments based on these predictions. The belief is that by doing so, they can maximize gains and minimize losses.

However, timing the market can be challenging even for seasoned professionals, as it relies on accurately forecasting market movements. Many factors, such as economic indicators, political events, and global issues, can impact the market unpredictably.

Another problem with market timing is the psychological impact it can have on investors. As market fluctuations create uncertainty, investors may experience emotional distress leading to impulsive decision-making. Fickle behaviors, such as panic selling during a market downturn or exuberant buying during a market upswing, can harm an investor’s long-term financial goals.

Instead of trying to time the market, it is often more beneficial to adopt a strategy of consistent, long-term investing. This approach involves regularly investing, regardless of market conditions, and focusing on growing investments over time. By doing so, investors can take advantage of compounding returns and reduce the risk associated with market timing.

Is Renting Better Than Buying?

Why Renting Is Better Than Buying?

In recent years, the debate between renting and owning a home has become increasingly relevant, as both rents and home prices continue to climb. Some tend to believe that buying a house is the best route to financial stability and security. However, there are numerous advantages to renting a home and should be considered when deciding between the two options.

Renting provides flexibility which allows individuals to move with greater ease and less long-term commitment than homeownership. Renting also eliminates MANY costs, both expected and unexpected. For many, it is clear that renting offers a more convenient and financially-sound solution.

There are even many financial experts who advocate for renting. James Choi was recently on the Planet Money podcast discussing why he’s renter for life and personal finance guru (and now Netflix star) Ramit Sethi also rents. There does seem to be a bias towards owning in the US, but renting is a better alternative for many people.

Financial Benefits of Renting (vs Buying)

When it comes to deciding between renting and buying a home, there are several financial advantages to renting.

No Maintenance Costs

One of the main advantages of renting is that tenants are not responsible for maintenance costs. When something breaks or needs repair in a rental property, it is typically the landlord’s responsibility to fix it. This can save renters a significant amount of money, as homeowners are faced with ongoing expenses for repairs and upkeep. Renters don’t have to pay $1,000 when the water heater needs replacement or $15,000 for a new roof, or $3,000 to find and fix an unknown plumbing issue. These expenses add up quickly and are not always taken into account by prospective homebuyers.

No Property Taxes

Renters do not have to pay property taxes. Homeowners, on the other hand, are subject to property taxes which can be quite substantial, especially in states or cities with high property values and/or property tax rates.

No Homeowners Insurance

Renters do not need to purchase homeowners insurance, which can be a considerable expense for homeowners. While renters should still have renters insurance to cover their personal belongings and liability, this is typically less expensive than homeowners insurance.

Lower Upfront Costs

Renting also tends to have lower upfront costs compared to buying a home. Rather than coming up with a large down payment to secure a mortgage, renters usually only need to provide a security deposit and first month’s rent. This can be a more affordable option for those who may not have a significant amount of savings. Even those who have saved a lot might be better off investing that capital rather than using it as a down payment.

Rent Control

In some cities, there are rent control laws that limit how much a landlord can increase rent each year. This can offer stability to renters, as their monthly expenses are predictable and may be protected from inflation and market fluctuations.

Savings on Amenities

Some rental properties include amenities like a gym, pool, or utilities as part of the rent. When these services are included, it can save renters money compared to homeowners who may have to pay separately for these amenities. In addition, renters can benefit from shared common areas and services provided by the landlord.

Renting can be a wise financial decision for many people, depending on their financial situation and lifestyle preferences. By considering the factors listed above, potential renters can make a more informed choice about whether renting or buying is the best option for them.

Renting is not necessarily throwing money away

Many people believe that renting a property is akin to throwing money away. However, this is not always the case. There are several valid reasons why renting can be a smarter financial decision in certain situations.

People often say this because rent goes to a landlord rather than paying down equity. Yet, in the early years of a mortgage, barely anything goes towards principal and most of a mortgage payment goes towards interest. Paying a high interest rate can be more akin to throwing money away than renting in many cases.

It is important to take into account the numbers. From a financial perspective, the decision of whether to rent or buy depends largely on the current housing market in a specific area. According to an analysis by, renting is cheaper in 45 out of the 50 largest U.S. cities.

Buying a home may be the ultimate goal for some people, but renting should not be seen as a waste of money. For many, it can be a smarter and more financially viable option in the short term, providing flexibility, lower expenses, and the ability to invest money elsewhere.

Flexibility in Lifestyle and Location

Easier to Relocate

One of the significant advantages of renting over homeownership is the ease of relocation. Renters enjoy the freedom to move for various reasons, including new job opportunities or to experience different neighborhoods within or outside their cities.

For many young people and millennials, this flexibility is crucial because they may not have settled into a permanent career or location. In metropolitan areas, renting an apartment or a house is often more accessible, allowing residents to experience the unique benefits of city living. Renting provides the opportunity to explore different communities and neighborhoods, gauging their accessibility, proximity to schools, and overall cultural compatibility.

Adapting to Life Changes

Renting also allows individuals and families the ability to adapt to life changes with considerably less commitment than homeownership. When renting, people have the option to upsize or downsize accommodations according to their needs. For example, if a family grows or an individual’s living situation changes, renting can accommodate these fluctuations without the large financial commitment of buying a home.

Moreover, apartment living often features greater access to community amenities, such as gyms, pools, and recreational areas, without added costs for maintenance. This added convenience can suit various lifestyles, especially for those who prioritize leisure and ease of living over long-term financial investments.

Renting offers significant benefits for those who value flexibility, adaptability, and a diverse lifestyle experience. As individuals and families navigate an ever-changing world, the ease of relocation and a focus on the present moment may supersede long-term commitments like buying a home.

Reduced Maintenance and Repair Responsibilities

In my view, one of the main advantages of renting a property instead of owning one is the reduced responsibility for maintenance and repairs. When living in a rented apartment or house, it’s the landlord’s duty to deal with any maintenance issues that may arise, such as fixing a leaky faucet, replacing a broken appliance, or addressing structural problems. This can save renters both time, money and stress, as they won’t have to worry about handling these tasks themselves or paying for the services of a professional. This peace of mind is worth a lot in many cases.

Investment Alternatives to Homeownership

Diversifying Your Portfolio

One of the benefits of renting over buying a home is the opportunity to diversify your investment portfolio. Homeownership is often considered a long-term investment, but it is not diversified at all and many markets can lose value. By choosing to rent instead of own, individuals can allocate the capital that would have gone towards a mortgage to a variety of investment options. This includes stocks, bonds, and even alternative investments.

By spreading investments across various asset classes, individuals are less likely to experience significant losses if the real estate market suffers a downturn. Compare this to a homeowner who may face declining property values or be stuck with a mortgage that exceeds their home’s value.

Lower Barriers to Entry

Another advantage to renting over buying is the lower initial costs associated with entering the rental market. Homeownership often requires a large down payment, as well as additional costs such as closing fees, inspection costs, and property taxes. Renters typically face lower upfront costs, which include security deposits and moving-related expenses.

In addition, renters often have better access to high-demand locations, such as city centers and popular neighborhoods, where property prices and mortgage interest rates may be prohibitive for potential homeowners. By avoiding the substantial costs of homeownership, renters can redirect funds towards different lifestyle expenses or investment opportunities.

Risks of Homeownership

Unexpected Costs

One risk of homeownership is the potential for unexpected costs. When owning a home, there are numerous expenses that can arise unexpectedly, such as maintenance and repair costs. For example, if the HVAC system needs to be replaced or a roof needs repairing, these costs can be substantial and must be covered by the homeowner.

Real Estate Market Risk

Another risk factor of homeownership is the real estate market risk. The housing market can be volatile, and homeowners need to consider fluctuations in home values when making long-term financial plans. A perfect example is the 2008 housing market crash, where numerous homeowners saw the value of their homes decrease significantly.

Renters, on the other hand, typically experience less exposure to the fluctuations of the housing market. They can more easily adapt to changing economic conditions, which can be especially beneficial for younger renters and millennials who may move to different cities or communities for job opportunities or to be closer to better schools.

There are various risks associated with homeownership that can make renting a more attractive option for many individuals. With the potential for unexpected costs and the uncertainty of the housing market, renters can enjoy a greater sense of flexibility and financial stability as they navigate their personal and professional lives. The “American Dream” of homeownership may not be the best choice for everyone, especially in a rapidly changing society and economy.

Final Thoughts: is it better to rent or buy?

Taking all these factors into account, it becomes apparent that renting can offer several benefits that make it an attractive alternative to owning a home. By considering personal preferences, financial capabilities, and geographic location, individuals can make an informed decision that best suits their needs and desires.

While many people tend to focus on the dollars and cents and financial projections, the flexibility that comes with renting cannot be overstated. Renters have the ability to change their living arrangements more easily if life circumstances or job opportunities change. This adaptability can be essential for those who value mobility or do not want the long-term commitment that homeownership entails.

Brokered CD vs Bank CD

Brokered CD vs Bank CD: Which One is Right for You?

Many people are not familiar with brokered CDs, even if they know what a CD is. There are several differences to consider when evaluating brokered CDs vs bank CDs, although brokered CDs almost always make more sense (in my experience).

What is a CD?

For those unfamiliar, a certificate of deposit (CD) is a deposit product offered by banks and credit unions. CDs typically offer higher interest rates than traditional checking and/or savings accounts. Unlike checking and savings accounts, CDs have fixed terms ranging from less than a month to several years. Banks sell CDs directly to their customers as well as through brokers.

Bank CD Basics

When you open a CD account at a bank, you agree to leave your money on deposit for a rate and term. You also typically agree to pay a penalty (or forego some accrued interest) if your withdraw or close the account early.

Bank CDs are generally covered by the Federal Deposit Insurance Corporation (FDIC) up the applicable limits. This makes them a safe investment option for those who want to earn more interest than a traditional savings account (assuming the amount is below FDIC insurance limits).

What is a Brokered CD?

A brokered CD is a type of CD that is offered through brokerage firms. Unlike traditional bank CDs that are bought directly from a bank, brokered CDs are purchased through brokerage firms.

Brokered CDs offer several benefits over traditional bank CDs, including higher rates (generally). Oftentimes, a bank will offer a lower rate to its own customers and a higher rate to brokered CD buyers. Additionally, brokered CDs can often be bought and sold on the secondary market before maturity. This means that investors can cash out their CDs early if they need to, although the price may be below (or above) par depending on how interest rates have moved.

There are also some downsides to brokered CDs. For one, they can be more complex than traditional bank CDs, as they may have different terms and conditions depending on the issuing bank. Investors should carefully consider their options before investing in a brokered CD and should seek advice from a financial professional if they are unsure.

Key Differences: Bank CDs vs Brokered CDs

Interest Rates

When it comes to interest rates, bank CDs typically offer lower rates than brokered CDs

It’s important to note that interest rates can vary widely between different banks and brokerage firms, so investors should consider shopping around to compare rates before investing.

FDIC Insurance

One of the key differences between bank CDs and brokered CDs is FDIC insurance. Multiple CDs at same bank could expose a depositor to risk if the aggregate amount is above FDIC limits. This is easy to avoid with brokered CDs as investors can buy CDs from many banks (and limiting the investment in any single CD to FDIC insurance maximums).

Accessibility and Liquidity

Another key difference between bank CDs and brokered CDs is accessibility and liquidity. Bank CDs are typically less liquid than brokered CDs because they are held at a single bank and cannot be traded on a secondary market. This means that if you need to access your funds before the CD matures, you may be subject to early withdrawal penalties.

Brokered CDs, on the other hand, can be bought and sold on a secondary market. However, this also means that their value can fluctuate based on market conditions, and you may not be able to sell them for the full value of your investment.

Minimum Investments

When it comes to minimum investments, bank CDs typically have lower minimums than brokered CDs. Many banks offer CDs with minimum investments as low as $500, while brokered CDs are typically sold in $1,000 increments.

Early Withdrawal Penalties

Finally, it’s important to consider early withdrawal penalties when choosing between bank CDs and brokered CDs. Bank CDs typically have fixed early withdrawal penalties, which are often a percentage of the interest earned or a set number of months’ worth of interest.

Brokered CDs, on the other hand, may be sold on the secondary market. This is one of the largest differences between a brokered CD vs bank CD.

Pros and Cons of Bank CDs


Bank CDs offer several advantages to investors, including:

  • FDIC Insurance: CDs are are covered by the FDIC, up to a maximum defined by the FDIC.
  • Low Risk: Bank CDs are considered low-risk investments because they are essentially cash investments (unlike riskier stocks, bonds, etc.)
  • Simple: CDs are extremely easy to understand, even for those who are not financially sophisticated.
  • Easy to Open: Bank CDs are easy to open and can be done in-person, online, or over the phone.
  • Fixed Interest Rate: Bank CDs often offer a fixed interest rate, which means that you know exactly how much you will earn over the life of the CD.


While bank CDs offer several advantages, there are also some drawbacks to consider:

  • Low Returns: Bank CDs typically offer lower returns than other types of investments, including brokered CDs.
  • Early Withdrawal Penalties: If you need to withdraw your money before the CD matures, you will likely face an early withdrawal penalty. This penalty can eat into your returns and reduce (or even eliminate) the overall return of your investment.
  • No Flexibility: Once you invest in a bank CD, you cannot typically access your funds until the CD matures (unless you pay a penalty). This lack of flexibility can be a disadvantage if you need the money for an emergency or unexpected expense.

Pros and Cons of Brokered CDs


Brokered CDs offer several advantages over traditional bank CDs, including:

  • Higher Yields: Brokered CDs can offer higher yields than bank CDs, making them a more attractive investment option for some investors.
  • Greater Variety: Brokered CDs may have longer terms or a greater variety of maturity terms compared to bank CDs, providing more options for investors.
  • FDIC Protection: Brokered CDs typically offer FDIC protection, just like bank CDs.
  • Flexibility: Brokered CDs can be purchased and sold on the secondary market, providing investors with more flexibility than traditional bank CDs.


While brokered CDs offer several advantages, there are also some potential drawbacks to consider:

  • Higher Minimum Deposits: Minimum deposits for brokered CDs may be slightly higher than those for bank CDs, which could be a barrier for some investors.
  • Less Accessible: Brokered CDs may be less accessible than bank CDs, as they are typically sold through brokerage firms and not directly through banks.
  • Market Risk: Brokered CDs are subject to market risk, meaning their value can fluctuate based on changes in interest rates and other market forces.
  • Less Familiarity: Some investors may be less familiar with brokered CDs and how they work, which could make them hesitant to invest in them.

Which One is Right for You?

When evaluating a brokered CD vs bank CD, it’s important to consider your individual financial goals and needs. That being said, I have never seen a scenario in which a brokered CD was the better choice.

Ultimately, the decision between a brokered CD and a bank CD will depend on your individual financial situation and goals. It’s important to do your research and compare the options before making a decision.

It’s important to do your research and carefully consider all the factors before making a decision. Remember to check the FDIC protection on any CD you invest in, and make sure you understand the terms and conditions of the CD before committing your funds.

Further Reading

Investors considering CD may also want to consider Treasuries. Read my comparison of CDs vs Treasuries. Investors willing to take substantially more risk for a fixed return may also want to look at hard money lending.

Exchange Funds

Not many individual investors are familiar with exchange funds (even though it’s a well-known tool among advisors) and whether they make sense for investors with low-basis stock. Every investor situation is different and there are multiple exchange funds in existence, so the below should not be considered advice or relied upon to make an investment decision. However, I am familiar with exchange funds and can provide some education around the topic.

What is an Exchange Fund?

To start, I should note that an “exchange fund” is not an “exchange-traded fund” (ETF). Exchange funds are private funds and typically organized as a 3(c)7 fund, which means that they are only available to “qualified purchasers.” To qualify as an qualified purchaser, individuals must own at least $5 million of investments (or $25 million if the investor is an entity) (see my post on the topic here). Minimum investments are often set in the $500,000 to $1,000,000 range. Fund purchases and redemptions are typically made “in-kind,” which means that investors contribute shares (instead of cash) to buy the fund and receive shares of stock (instead of cash) to exit the fund.

How Does An Exchange Fund Work?

Exchange funds represent a diversification strategy where an investor can exchange shares of a single stock for shares of the exchange fund. In other words, an investor can exchange an individual stock for a basket of stocks. Investors who stay invested for at least seven years can generally elect to receive a diversified basket of stocks when they redeem from the fund (holding periods of less than seven years are often redeemed with the same stock that was contributed, although the dollar value of the redemption may be less favorable).

Why Would An Investor Use An Exchange Fund?

Assume an investor owns $100 of a stock with a cost basis of $20. Rather than selling the stock, realizing $80 of capital gains, paying tax on the capital gains, and then re-investing the post-tax proceeds, an exchange fund investor could contribute the $100 of stock to the fund and receive $100 of fund shares. Rather than selling stock (and paying tax) in order to raise cash and then diversify, the exchange fund investor is able to diversify without creating a taxable event.

Why Wouldn’t an Investor Use an Exchange Fund?

I should note that exchange funds are not a good solution for every situation. Below are just a few situations where an exchange fund would not make sense:

  • Investors who need cash and/or liquidity should not invest in an exchange fund, as the investor is simply trading one investment for another (with the maximum benefit realized after seven years). Exchange funds are diversification strategy, but cannot help with unlocking liquidity.
  • Although exchange funds represent a way to defer tax, the capital gain remains embedded in the investments. The capital gain and tax liability is “transferred” from the single stock to the exchange fund and possibly to the redemption basket of stocks (if/when the investor exits). Thus, those who want to diversify and defer taxes may find value in an exchange fund. However, the funds do have expenses and costs, so these must be weighed against the benefits of the tax deferral.
  • Lastly, there is the issue of ability to invest. Typically, investors must be “qualified purchasers” and able to deliver at least $500,000 to $1 million of stock. Generally only “large cap” stocks can be contributed and the fund must have capacity for that specific stock.

Exchange funds can be a good solution for investors whose wealth is concentrated in low-basis stock positions. Nonetheless, I encourage investors to work with their advisor, accountant, and attorney in order to determine if an exchange fund is an appropriate strategy.

CDs vs Treasuries: Comparison & A Clear Choice

CDs and Treasuries are two popular vehicles for investors to maximize returns without taking much (if any) credit risk. The average American is probably more familiar with CDs even though Treasuries are a better vehicle for most people. Learn why below:

CD stands for certificate of deposit and are issued by banks. There are two main types of CDs. Traditional CDs are typically advertised to a bank’s clients and potential clients. Brokered CDs are distributed through brokerages and investors can purchase them at issuance or trade them. Read more about brokered CDs vs bank CDs.

Treasuries are refer to bonds issued by the US Treasury. Treasury bonds, notes, and bills are all the same thing and the different words are used to denote the term of the bond at issuance (bonds are long-term, notes are intermediate, and bills are short-term). This article focuses on shorter-term maturities since CD are generally shorter-term.



Both CDs and Treasuries offer government guarantees, although the terms and entities are slightly different.

CDs and other types of bank accounts are typically insured by the Federal Depot Insurance Corporation (FDIC), which insures up to “per depositor at each insured bank and savings association.” Those with more than $250,000 can use multiple registrations and/or multiple banks to obtain a higher amount of protection (in aggregate).

The FDIC is essentially an insurance plan that banks pay into to protect their customers in case the bank fails. If there were massive numbers of bank failures that overwhelmed the FDIC’s ability to make depositors whole, the FDIC’s website states two contingency plans:

  • Plan A would be to draw on a line of credit with the US Treasury. Essentially get a loan from the Treasury.
  • Plan B is that the FDIC is backed by the full faith and credit of the US government (which is another way of saying the Treasury would cover any shortfall). This is probably true, but I imagine it would require congressional approval which could be politically fraught.

However, no FDIC insured deposits have been lost due to bank failure since the FDIC was established in 1933.


Treasuries are not insured in any way. So there is no dollar limit, since there is no insurance in the first place.

The US Treasury says it will pay back principal and interest and people accept that (although it gets a little dicey every time there is a debt-ceiling standoff in the US). That being said, I would argue that Treasuries are theoretically safer than CDs since the Treasury backs the FDIC. Of course, you should not park money in Treasuries if there’s a chance that the US will sanction you, as Russia learned in 2022 (the US simply confiscated their Treasuries, which are of course just digital assets sitting on ledgers in the Treasury computer system).

I suppose there is a scenario where the US government defaults (due to a debt ceiling battle or something else) and Treasury payments don’t get made while banks still honor CD payments. This seems unlikely to me, but I suppose it is theoretically possible.


Treasuries are generally accepted to be the most liquid asset in the world. It is generally very easy and low cost to buy or sell Treasuries.

CDs are a slightly different story. CDs offered by banks directly to consumers are generally illiquid. Investors typically buy a CD for a certain term directly from the bank and there is often an early withdrawal penalty. Brokered CDs are issued by banks through brokerages and investors can buy them at issue or trade them on a secondary market. So brokered CDs are relatively liquid, but not to the same extent as Treasuries. I would personally never buy a CD from a bank, although I would consider a brokered CD.


This does not always hold true, but Treasuries generally yield the most, followed by brokered CDs with traditional CDs generally yielding the lowest. Of course there is a range, so the highest yielding brokered CD may exceed Treasury rates (as an example). One thing to look out for with traditional CDs are limits on how much can be deposited. The rate may be higher for the first $10,000 (as an example) and lower on any additional amounts.


Treasuries have much more favorable tax treatment than CDs. Both Treasuries and CDs generate interest income, which is taxed at ordinary income tax rates. However, Treasuries are exempt from state and local tax, which can be quite high in places like California or New York City. For residents in high tax states or cities, using Treasuries over CDs is probably a no-brainer for taxable accounts.

Other Considerations

i have recommended CDs to some people in the past if their state tax rate is low, don’t need the liquidity, and are older and just more comfortable with CDs. Sometimes it is better to keep retirees in their comfort zone than push them outside their comfort zone, in my opinion. I’m a big proponent of only investing in things that one understands. However, I recommend Treasuries much more frequently than CDs.

529 vs Coverdell ESA

Two of the most popular ways to save for future educational expenses are the 529 college savings plan and the Coverdell Education Savings Account (ESA). Both are a great way to save for future educational expenses.

The two account types are similar in many ways, but there are important differences. Many people ask whether they should contribute to one or the other. The short answer is contribute to both!

People other than parents can contribute to both 529 and ESA accounts, but my strong advice to most parents is to buy enough term life insurance and establish an estate plan BEFORE saving for education.

529 vs Coverdell: The Longer Answer

When evaluating 529 vs Coverdell accounts, the thing to remember is that both 529 and Coverdell ESA accounts are tools to save for education, but there are some major differences. Below are some of the main features and differences between the two programs.

I should note that the below is not exhaustive, but covers the factors that I consider when evaluating how to save for my own family’s education expenses. To read the all of the rules relating to 529 and Coverdell accounts, read IRS publication 970.

529 Accounts

529 Contributions

  • 529 contributions are made with post-tax dollars. However, some states’ plans offer state income tax deductions for contributions.
  • Contribution limits vary by state, but are generally in the hundreds of thousands of dollars and not a factor for most people.
    • Only contributions below the annual gift tax exclusion ($17,000/year for 2023) do not count against one’s lifetime gift tax exemption ($12.92 million for 2023).
    • The IRS does allow individuals to contribute five years of the gift tax exclusion amount without counting against the lifetime exemption. For instance, someone could contribute $85,000 to a 529 in year one, without using any lifetime gift tax exemption. Similarly, two parents could contribute $170,000 in year one.
  • Contributions are not limited by one’s income.

529 Investments

  • 529 accounts are limited to mutual funds (often in preset model allocations) and allocations can only be changed once per year.

529 Distributions

  • Distributions from a 529 are tax-free if used towards qualified education expenses. The definitions of qualified education expenses (which differs from a Coverdell ESA’s) is quite detailed, so read the IRS guidelines for 529s. Below are a couple of areas that differ materially from Coverdell ESAs:
    • Only $10,000 per year can be used towards K-12 tuition and fees, while computers, books, room and board, and other items are reserved for college expenses.
    • $10,000 can be used towards student loan payments. This is a lifetime limit and not per year.
  • Unlike Coverdell ESAs, there is no age limit for beneficiaries of 529s. Even an adult could open a 529 to save for their future education expenses!


  • Beneficiaries can be changed and/or the assets rolled into a family member’s 529. Family member is of course defined by the IRS 🙂

Coverdell Educational Savings Account (ESA)

Coverdell Contributions

  • Coverdell ESA contributions are made with post-tax dollars.
  • Contributions are limited to $2,000 per year.
  • Contributions are limited by one’s income. However, a common tax strategy is outlined below.

Coverdell ESA Tax Strategy

There is an income limitation for Coverdell ESA donations; someone cannot contribute to a Coverdell if their modified adjusted gross income (MAGI) is above $110,000 individually (or $220,000 jointly) in any tax year.

Interestingly, the IRS clarifies (in Publication 970) that “organizations, such as corporations and trusts can also contribute to Coverdell ESAs. There is no requirement that an organization’s income be below a certain level.” Many investors read this to mean that they can make an eligible contribution from their revocable trust, even if their individual or joint income is above the limit. Thus, many high-earners contribute to Coverdell accounts (regardless of their income) by making contributions through a trust.

Coverdell ESA Investments

  • Coverdell ESAs can be invested in many tradable securities, such as stocks, bonds, ETFs, mutual funds, etc.

Coverdell ESA Distributions

  • Distributions from a Coverdell ESA are tax-free if used towards qualified education expenses. The definitions of an ESA’s qualified education expenses (which differs from a 529’s) is quite detailed, so read the IRS guidelines for 529s. Below are a couple of areas that differ materially from 529s:
    • Coverdell ESA’s cover elementary, secondary, and college expenses (unlike 529s which focus primarily on college expenses).
    • Coverdell ESA funds cannot be used towards student loan payments.
  • Coverdell ESAs need to be fully distributed by the time the beneficiary is 30 years old.


  • Beneficiaries can be changed and/or the assets rolled into the Coverdell ESA of a family member under the age of 30 (with certain exceptions). Again, family member is defined by the IRS.

Q&A: Coverdell vs 529

Are 529 and Coverdells the same thing?

No, 529 and Coverdell accounts are not the same thing; they are different types of accounts. A 529 is not a Coverdell plan and a Coverdell is not a 529 plan.

Can you have a Coverdell and a 529 plan?

Yes, people can both a Coverdell and a 529 plan.

Can you contribute to a Coverdell and a 529?

Yes, people can contribute to both Coverdell and 529 accounts, even in the same year.

Should you contribute to a Coverdell or a 529 or both?

If I was going to contribute less than $2,000 per year, I would only contribute a Coverdell ESA.

Those who are contributing the maximum allowable amounts to a 529 and don’t want to maintain additional Coverdell ESA accounts, may want to just stick to 529. The rationale being: why open and maintain a Coverdell with $2,000 if opening and depositing $170,000 into a 529.

Those who want to maximize contributions and tax savings can open both a Coverdell and a 529, although I prioritize the Coverdell for the first $2,000.

Is 529 better than Coverdell?

Neither 529 nor Coverdell is “better.” The savings programs are different and the best choice will vary from person to person.

Should I used 529 or Coverdell first?

Generally, I contribute to Coverdell accounts first. However, the state tax benefits in certain states makes it more attractive to contribute to 529s first.

Financial Advice for New Parents

“Do you have any financial advice for new parents?”

A handful of friends have asked this question in the past week. The question often relates to childcare expenses or college savings plans, but I usually advise new parents to prioritize the below items before anything else:

  • Buy enough term life insurance to provide for your family if you and/or your spouse die prematurely. There’s no “right” amount, so ask yourself what you would want covered if you passed. Your salary of x years? Your spouse’s salary so he/she wouldn’t have to work for y years? Childcare expenses for z years? Payoff a mortgage? College tuition? Other expenses? Add those numbers up and go get some quotes.
  • Establish an estate plan, including a revocable living trust and will. The will should appoint a guardian for your children if you pass away while they’re still minors, although the courts do have the final say. The will also directs what to do with assets that were excluded from the trust (or forgotten to be put in the trust, which I see very often!). The trust should help avoid probate for assets placed within it and provide for supervision of the assets for the benefit of the children.

Buying insurance and establishing an estate plan are simple steps, but each does require some time and money. Fortunately, each item can be a one-time decision, which may be a relief for new parents who are completely overwhelmed!

In my experience though, insurance agents are hungry for business and often provide speedy and over-the-top service. And unless there is some complexity, my observation is that most attorneys can draft an estate plan within a couple days of an initial meeting.

These two steps might not optimize your financial life, but they may protect your kids against the worst outcomes.

Frequently Asked Questions (FAQs)

Many of my friends are having kids these days, which means I’m being asked about 529s more than anything else. Below are just a few of the common questions:

  • Should I open a 529?
  • Which company should I use?
  • How much should I contribute?

My answer to all of the above is:

  • Are you properly insured?
  • Is your estate plan in order?

If not, my advice is generally “Go get properly insured and engage an estate planning attorney. Before investing money for an uncertain future, invest to protect your family should anything unexpected happen.”

The above is educational and is NOT legal or financial advice. Every situation is different and I’m not an insurance agent or an attorney.

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