Where to invest $10,000?

After I opened the HELOC account, I wanted to invest the money I stashed in the emergency fund (savings and CDs) into assets with higher returns. So I compared potential investment returns from various asset classes that are less volatile and easily liquidated.

Summary

assetcomparison.png

Among the stable asset, iShare California Muni Bond ETF is likely the winner. It has decent return, low volatility, and can reduce my adjusted gross income.

Fidelity Equity Dividend Income Fund (high dividend stock) and High Income Fund (high yield bond) have better returns, however they have higher risk and volatility. For now, I prefer to manage assets in taxable accounts conservatively.

Assumptions:

  • My marginal federal income tax rate: 24.0%

  • My marginal state (CA) tax rate: 9.3%

  • My qualified dividend tax rate: 15.0%

Caveat:

  • To estimate return from mutual fund and ETF, I used their past 30-day or 1 year yield. However, there is no guarantee such yield will continue in future.

Analysis

Ally Bank saving account

  • APY: 2.20%

  • Fee: $0.00

  • Tax: interest is taxed at my marginal federal + state income tax rate (33.3%)

  • After-tax/fee return: 1.47% ($146.74) = 2.20% x (1-0.333)

Ally Bank 12-month CD

  • APY: 2.75%

  • Fee: $0.00

  • Tax: my marginal tax rate (33.3%)

  • After-tax/fee return: 1.83% ($183.42) = 2.75% x (1-0.333)

Fidelity Short-term Treasury Index Fund (FUMBX)

  • APY: 2.49% per its 30-day yield

  • Fee $0.00 at Fidelity

  • Expense ratio: 0.03%

  • Tax: interest is taxed at my marginal federal income tax rate (24.0%); exempt from state and local taxes

  • After-tax/fee return: 1.89% ($189.18) = 2.49% x (1-0.0003) x (1-0.24)

Fidelity US Bond Index Fund (FXNAX)

  • APY: 2.17% per its 30-day yield

  • Fee: $0.00 at Fidelity

  • Expense ratio: 0.25%

  • Tax: my marginal tax rate (33.3%)

  • After-tax/fee return: 1.44% ($144.37) = 2.17% x (1-0.0025) x (1-0.333)

iShares California Muni Bond ETF (CMF)

  • APY: 2.17% per its twelve month trailing yield (caveat: the past yield doesn’t predict future yield)

  • Fee: $0.00 at Fidelity

  • Expense ratio: 0.25%

  • Tax: interest is exempt from federal and state tax

  • After-tax/fee return: 2.16% ($216.46) = 2.17% x (1-0.0025)

Fidelity Equity Dividend Income Fund (FEQTX)

  • APY: 2.52% per its 30-day yield (caveat: the past yield doesn’t predict future yield)

  • Fee: $0.00 at Fidelity

  • Expense ratio: 0.62%

  • Tax: qualified dividend is taxed at 15% in my case

  • After-tax/fee return: 2.13% ($212.87) = 2.52% x (1-0.0062) x (1-0.15)

Fidelity High Income Fund (SPHIX)

  • APY: 5.62% per its 30-day yield (caveat: the past yield doesn’t predict future yield)

  • Fee: $0.00 at Fidelity

  • Expense ratio: 0.70%

  • Tax: interest from this bond fund is taxed at my marginal federal + state income tax rate (33.3%)

  • After-tax/fee return: 3.72% ($372.23) = 5.62% x (1-0.007) x (1-0.333)

Conclusion

For my taxable account, Muni Bond ETF (CMF) would be an excellent choice for stability and row risk.