49 ms·

Not to overcomplicate things, but anyone planning to save money for >12 months should be using the BOXX ETF (https://etfsite.alphaarchitect.com/boxx/ https://et

by iav 3y ago

Not to overcomplicate things, but anyone planning to save money for >12 months should be using the BOXX ETF (https://etfsite.alphaarchitect.com/boxx/ https://etfsite.alphaarchitect.com/boxx/) to convert the interest income into a long-term capital gain. Even if you end up cashing out before the 12 months, you are still going to pay the same taxes as with a savings account, so there is truly no downside.

MetaWhirledPeas 3y ago
What's the rate of return that way? The 5% coming from the bank is pretty nice and is easily understood. I scrolled to the end of that BOXX page and even watched the video, and I still don't understand it.
- _ink_ 3y ago
  The Bloomberg article states 5.07% after fees.
  - nonethewiser 3y ago
    Which is before taxes. Just like the 5% HYSA is before taxes. In the case of BOXX this is going to be 0-20% (depending on your income) whereas the HYSA tax will be 10-37% (depending on your income).
    - lotsofpulp 3y ago
      If you are subject to state or other local income taxes, then the HYSA is subject to those also, whereas BOXX would not be.
      - nonethewiser 3y ago
        Great point, I missed that.
- KMag 3y ago
  The short answer is that if you could answer that question in advance to a high accuracy, you could make billions as bond trader. In theory, you get paid similarly to regularly going out into the bond market and buying US government bonds that expire in the next few months, but with a potential tax savings twist. (I am a random Internet dude, not a tax lawyer.) The returns supposedly track the short end of the yield curve on US Treasuries. That would make sense, as theoretically, the net premium of a box spread is equal to the net present value of the payout (under the no arbitrage assumption). That net present value should be very close to the yield on a zero-risk asset over the same time period. They're using 1 to 3 month options, so in theory, they get yield close to short-term US Treasuries (the market prices a near-zero probability of the US defaulting on its bonds in the next few months). I haven't looked into the tracking error between SPY box spreads and the short end of the US yield curve. https://en.wikipedia.org/wiki/Box_spread#cite_note-2 https://en.wikipedia.org/wiki/Box_spread#cite_note-2 says the yield averages about 0.35% above holding equivalent maturity US Treasuries. Though, it sounds like they're using box spreads composed of American options, so I wonder how they deal with early exercise risk. You only get bond-like performance from a box spread if you don't have early-exercise risk. The further out of the money they place their strikes in the box spread to avoid early exercise risk, the lower the liquidity they get, and higher trading costs. The tax trick is that they also enter into a delta-neutral trade on a high-value single stock. (They don't use and index for this part because they want the difference between the winning and losing parts of this trade to be as large as possible, so they want volatility in the underlying asset.) At certain points, they realize the losses on the losing half of that trade (reducing tax liability), and perform a tax-free in-kind exchange of units (shares) in their ETF for the winning half of that trade. Of course, they don't know in advance which half will win and which will lose, but it doesn't matter. The brokerage buying their ETF in order to make the tax-free exchange bumps up the price of the ETF, very close to the value of the winning leg of the tax-saving trade. Note the several caveats above (and probably some I missed) in comparing with US Treasuries yield. This is not investment or tax advice.
ca_tech 3y ago
For a detailed report on the mechanics behind the BOXX ETF, Bloomberg just published this article: https://archive.is/8kq0G https://archive.is/8kq0G It is not a perfect solution for everyone. You do need to take into account your income tax rate and your capital gains tax rate.
- infecto 3y ago
  The universe has come full circle. For those of us who cannot resolve archive link. Article https://www.bloomberg.com/news/articles/2024-02-22/this-exchange-traded-fund-mimics-t-bill-returns-without-tax-bills https://www.bloomberg.com/news/articles/2024-02-22/this-exch... Matt Levine's https://www.bloomberg.com/opinion/articles/2024-02-22/put-the-money-in-the-boxx https://www.bloomberg.com/opinion/articles/2024-02-22/put-th...
  - ct0 3y ago
    Does your DNS block archive.is?
    - woleium 3y ago
      i was going to ask this. you can fix it with a static hosts file entry, or dnsmasq config update on your router. See https://www.reddit.com/r/DataHoarder/s/gfH9MFAxcp https://www.reddit.com/r/DataHoarder/s/gfH9MFAxcp for more info
    - radlad 3y ago
      Cloudflare has issues with archive.is: https://news.ycombinator.com/item?id=28495204 https://news.ycombinator.com/item?id=28495204
      - Hello71 3y ago
        the opposite is the case. from your link: "Archive.is’s owner is intentionally blocking 1.1.1.1 users"
empathy_m 3y ago
I keep thinking about parking cash in box spreads on SPX directly -- pay net $98,000 in option premium now and earn $100,000 in a few months, effectively lending to the market at the rate implied by highly liquid option prices. The section 1256 tax treatment is especially cool not so much because of the 60/40 taxation but because if you have several consecutive years of 60/40 gains you can edit your past year's income by incurring a current year loss and having a carryback loss.
- vamega 3y ago
  I've borrowed money using SPX box spreads. You can get data on the recent trades and build a box spread at https://www.boxtrades.com/ https://www.boxtrades.com/ There's a long thread on the Bogleheads forums about Box Spreads here: https://www.bogleheads.org/forum/viewtopic.php?t=344667 https://www.bogleheads.org/forum/viewtopic.php?t=344667
andrewla 3y ago
I only just learned about this in Matt Levine's newsletter [1], and assuming they don't get regulated out of existence, it seems almost too good to be true. The effective tax-discounted rate of return on a 5.6% interest-bearing account is really only 3.5% because it's ordinary income (paying taxes of .37 * 5.6). But as long-term gains it becomes 4.3% (paying taxes of .238 * 5.6). And while it is compounding you pay no taxes at all. [1] https://www.bloomberg.com/opinion/articles/2024-02-22/put-the-money-in-the-boxx https://www.bloomberg.com/opinion/articles/2024-02-22/put-th...
nonethewiser 3y ago
This is hilarious. It's not as risk-free as an FDIC insured HYSA account though. I don't care what the ETF tracks - being an ETF that tracks something comes with some additional risk.
- padolsey 3y ago
  Yes to that. And this may be my own risk-averseness, but I don't have complete confidence in all these derivative instruments anyway. I don't have time or sufficient interest to look into the construction of ETFs and how their holdings are managed, so I will opt for a mixture of stock-picking, index funds, bonds, ETFs, and just plain old savings accounts at banks I can see on the cold hard cement of the city. I try to be diversified in which financial instruments I choose. It seems most people have blind faith that X or Y instrument are constructed, managed and regulated in a reliable and trustworthy way. They entrust their money into weird mechanisms where they believe they own AAPL stock but actually it's just a derivative slice on precarious terms (fractional shares or other slimey broker-made nonsense).
  - bombcar 3y ago
    You can certainly over-engineer your solution, but just watch the world and see how "you would have fared" in situations that affect others. For example, everything goes to shit if Rogers goes down so hard that no electronic payments of anything works; so maybe some percentage of an emergency fund should be literal cash on hand.
teeray 3y ago
> there is truly no downside What about FDIC?
- hatch7 3y ago
  [flagged]
  - aaomidi 3y ago
    My dude the feds have consistently bailed out more than the minimums. If FDIC ever fails, then these ETFs are likely to crash with them due to the sheer “wtf” moment that would be.
    - TMWNN 3y ago
      >My dude the feds have consistently bailed out more than the minimums. You mean "maximums". And, no, that's not true. IndyMac customers got back about 50 cents on the dollar for non-insured deposits. The typical non-insured depositor in post-2008 bank failures (all tiny, until SVB and Signature) got about 75 cents on the dollar.
      - deleted 3y ago
        [deleted]
      - deleted 3y ago
        [deleted]
4star3star 3y ago
For someone like myself who is only sophisticated enough to fund an IRA, CD, or savings account, how does one start out with BOXX ETF?
- andrewla 3y ago
  Open a brokerage account, and buy it just like a stock. If you have an IRA you likely already have an account at a brokerage.
- bombcar 3y ago
  Go to https://www.bogleheads.org https://www.bogleheads.org and read until you start to feel the ability to answer questions.

by iav 3y ago

MetaWhirledPeas 3y ago

What's the rate of return that way? The 5% coming from the bank is pretty nice and is easily understood. I scrolled to the end of that BOXX page and even watched the video, and I still don't understand it.

_ink_ 3y ago
The Bloomberg article states 5.07% after fees.
- nonethewiser 3y ago
  Which is before taxes. Just like the 5% HYSA is before taxes. In the case of BOXX this is going to be 0-20% (depending on your income) whereas the HYSA tax will be 10-37% (depending on your income).
  - lotsofpulp 3y ago
    If you are subject to state or other local income taxes, then the HYSA is subject to those also, whereas BOXX would not be.
    - nonethewiser 3y ago
      Great point, I missed that.
KMag 3y ago
The short answer is that if you could answer that question in advance to a high accuracy, you could make billions as bond trader. In theory, you get paid similarly to regularly going out into the bond market and buying US government bonds that expire in the next few months, but with a potential tax savings twist. (I am a random Internet dude, not a tax lawyer.) The returns supposedly track the short end of the yield curve on US Treasuries. That would make sense, as theoretically, the net premium of a box spread is equal to the net present value of the payout (under the no arbitrage assumption). That net present value should be very close to the yield on a zero-risk asset over the same time period. They're using 1 to 3 month options, so in theory, they get yield close to short-term US Treasuries (the market prices a near-zero probability of the US defaulting on its bonds in the next few months). I haven't looked into the tracking error between SPY box spreads and the short end of the US yield curve. https://en.wikipedia.org/wiki/Box_spread#cite_note-2 https://en.wikipedia.org/wiki/Box_spread#cite_note-2 says the yield averages about 0.35% above holding equivalent maturity US Treasuries. Though, it sounds like they're using box spreads composed of American options, so I wonder how they deal with early exercise risk. You only get bond-like performance from a box spread if you don't have early-exercise risk. The further out of the money they place their strikes in the box spread to avoid early exercise risk, the lower the liquidity they get, and higher trading costs. The tax trick is that they also enter into a delta-neutral trade on a high-value single stock. (They don't use and index for this part because they want the difference between the winning and losing parts of this trade to be as large as possible, so they want volatility in the underlying asset.) At certain points, they realize the losses on the losing half of that trade (reducing tax liability), and perform a tax-free in-kind exchange of units (shares) in their ETF for the winning half of that trade. Of course, they don't know in advance which half will win and which will lose, but it doesn't matter. The brokerage buying their ETF in order to make the tax-free exchange bumps up the price of the ETF, very close to the value of the winning leg of the tax-saving trade. Note the several caveats above (and probably some I missed) in comparing with US Treasuries yield. This is not investment or tax advice.

ca_tech 3y ago

For a detailed report on the mechanics behind the BOXX ETF, Bloomberg just published this article: https://archive.is/8kq0G https://archive.is/8kq0G It is not a perfect solution for everyone. You do need to take into account your income tax rate and your capital gains tax rate.

infecto 3y ago
The universe has come full circle. For those of us who cannot resolve archive link. Article https://www.bloomberg.com/news/articles/2024-02-22/this-exchange-traded-fund-mimics-t-bill-returns-without-tax-bills https://www.bloomberg.com/news/articles/2024-02-22/this-exch... Matt Levine's https://www.bloomberg.com/opinion/articles/2024-02-22/put-the-money-in-the-boxx https://www.bloomberg.com/opinion/articles/2024-02-22/put-th...
- ct0 3y ago
  Does your DNS block archive.is?
  - woleium 3y ago
    i was going to ask this. you can fix it with a static hosts file entry, or dnsmasq config update on your router. See https://www.reddit.com/r/DataHoarder/s/gfH9MFAxcp https://www.reddit.com/r/DataHoarder/s/gfH9MFAxcp for more info
  - radlad 3y ago
    Cloudflare has issues with archive.is: https://news.ycombinator.com/item?id=28495204 https://news.ycombinator.com/item?id=28495204
    - Hello71 3y ago
      the opposite is the case. from your link: "Archive.is’s owner is intentionally blocking 1.1.1.1 users"

empathy_m 3y ago

I keep thinking about parking cash in box spreads on SPX directly -- pay net $98,000 in option premium now and earn $100,000 in a few months, effectively lending to the market at the rate implied by highly liquid option prices. The section 1256 tax treatment is especially cool not so much because of the 60/40 taxation but because if you have several consecutive years of 60/40 gains you can edit your past year's income by incurring a current year loss and having a carryback loss.

vamega 3y ago
I've borrowed money using SPX box spreads. You can get data on the recent trades and build a box spread at https://www.boxtrades.com/ https://www.boxtrades.com/ There's a long thread on the Bogleheads forums about Box Spreads here: https://www.bogleheads.org/forum/viewtopic.php?t=344667 https://www.bogleheads.org/forum/viewtopic.php?t=344667

andrewla 3y ago

I only just learned about this in Matt Levine's newsletter [1], and assuming they don't get regulated out of existence, it seems almost too good to be true. The effective tax-discounted rate of return on a 5.6% interest-bearing account is really only 3.5% because it's ordinary income (paying taxes of .37 * 5.6). But as long-term gains it becomes 4.3% (paying taxes of .238 * 5.6). And while it is compounding you pay no taxes at all. [1] https://www.bloomberg.com/opinion/articles/2024-02-22/put-the-money-in-the-boxx https://www.bloomberg.com/opinion/articles/2024-02-22/put-th...

nonethewiser 3y ago

This is hilarious. It's not as risk-free as an FDIC insured HYSA account though. I don't care what the ETF tracks - being an ETF that tracks something comes with some additional risk.

padolsey 3y ago
Yes to that. And this may be my own risk-averseness, but I don't have complete confidence in all these derivative instruments anyway. I don't have time or sufficient interest to look into the construction of ETFs and how their holdings are managed, so I will opt for a mixture of stock-picking, index funds, bonds, ETFs, and just plain old savings accounts at banks I can see on the cold hard cement of the city. I try to be diversified in which financial instruments I choose. It seems most people have blind faith that X or Y instrument are constructed, managed and regulated in a reliable and trustworthy way. They entrust their money into weird mechanisms where they believe they own AAPL stock but actually it's just a derivative slice on precarious terms (fractional shares or other slimey broker-made nonsense).
- bombcar 3y ago
  You can certainly over-engineer your solution, but just watch the world and see how "you would have fared" in situations that affect others. For example, everything goes to shit if Rogers goes down so hard that no electronic payments of anything works; so maybe some percentage of an emergency fund should be literal cash on hand.

teeray 3y ago

> there is truly no downside What about FDIC?

hatch7 3y ago
[flagged]
- aaomidi 3y ago
  My dude the feds have consistently bailed out more than the minimums. If FDIC ever fails, then these ETFs are likely to crash with them due to the sheer “wtf” moment that would be.
  - TMWNN 3y ago
    >My dude the feds have consistently bailed out more than the minimums. You mean "maximums". And, no, that's not true. IndyMac customers got back about 50 cents on the dollar for non-insured deposits. The typical non-insured depositor in post-2008 bank failures (all tiny, until SVB and Signature) got about 75 cents on the dollar.
    - deleted 3y ago
      [deleted]
    - deleted 3y ago
      [deleted]

4star3star 3y ago

For someone like myself who is only sophisticated enough to fund an IRA, CD, or savings account, how does one start out with BOXX ETF?

andrewla 3y ago
Open a brokerage account, and buy it just like a stock. If you have an IRA you likely already have an account at a brokerage.
bombcar 3y ago
Go to https://www.bogleheads.org https://www.bogleheads.org and read until you start to feel the ability to answer questions.