Forget Savings Accounts. Use This New ETF Instead. (BOXX ETF Review)

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What if I told you there’s a way to get the risk-free return of T-bills but in a way that’s more tax-efficient than buying T-bills directly or buying a T-bills fund? Here I review the BOXX ETF and why you might want to consider it over your favorite T-bills ETF or money market fund for your cash management needs.
// TIMESTAMPS:
00:00 - Intro
00:15 - Cash-Equivalent Investments and Taxes
01:33 - BOXX - Alpha Architect 1-3 Month Box ETF
02:12 - Box Spreads
04:26 - Risks
05:02 - Taxes
06:00 - Performance and Fees
06:36 - Conclusion
// SUMMARY:
For short-term cash-equivalent investments, which you’d use for an emergency fund or for a short-term goal, you’ve got a few pretty standard options like a high yield savings account, certificates of deposit, treasury bills or T-bills for short, and money market funds. These are all about as low as it gets on the risk scale and pay something close to what’s called the risk-free rate, defined as the 3-month Treasury Bill rate. At the time of writing, that rate is around a very appreciable 5%, so these products have attracted more discussion and more investment recently.
The problem with all these is that you’re still taxed on that monthly interest or return because the IRS treats it as income, even if you’re just reinvesting it and letting that money grow inside the account.
And while obviously that interest is money you didn’t have previously so it’s all gravy even after taxes, I don’t know anyone who enjoys paying taxes, especially on money that’s not really being used for anything tangible.
But of course, that taxation is simply unavoidable, right? Well, maybe not anymore…
Enter BOXX, an ETF from Alpha Architect that aims to deliver the risk and return profile of T-bills but in a more tax-efficient manner. Its full name is the Alpha Architect 1-3 Month Box ETF. It may now be the best place to hold cash.
So how does it work?
While it may sound counterintuitive, in attempting to resemble T-bills, BOXX doesn’t actually hold T-bills or any bonds at all. It uses highly liquid derivatives to synthetically extract a return resembling the risk-free rate. It does this specifically by simultaneously holding a synthetic long position and a synthetic short position on the S&P 500, and the difference in strike price between those should be close to the risk-free rate of return.
This trade is known as a “box spread,” hence the name of the ETF.
Taxation of box spreads is pretty complicated, but the gist is that options on indexes like the SPX are taxed as 60% long term capital gains and 40% short term capital gains.
BOXX now impressively boasts over $1 billion in assets after only a little over a year.
Read the blog post here: www.optimizedportfolio.com/boxx/
#shortterminvesting #savingsaccount #treasurybills
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Опубликовано:

24 июл 2024

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Комментарии : 118

@OptimizedPortfolio 5 месяцев назад

What do you think of the new BOXX ETF from Alpha Architect? Do you own it? Are you planning to buy it?

@CBLE 5 месяцев назад

Saw your ad on Reddit, well explained.

@OptimizedPortfolio 5 месяцев назад

Thanks!

@dannyjensen4954 5 месяцев назад

Thank you for covering this topic. Great topic for people that that have accumulated long term loss carry forward and are limited to $3000 per year.

@OptimizedPortfolio 5 месяцев назад

Indeed, Danny. Thanks for watching!

@digilifepro 2 месяца назад

Could you elaborate on how this strategy relates to long term carry forward losses? Thx

@animeboi3939 2 месяца назад

@@digilifepro It's usually better to claim your losses as quickly as you can, which requires capital gains if they are over $3,000. If you hold BOXX for a year and sell (and buy right back into) you will get long term cap gains to claim losses against.

@OptimizedPortfolio 2 месяца назад

@@digilifepro Realizing gains that would just be offset by losses. You can read more here: www.bogleheads.org/forum/viewtopic.php?t=410602

@surfrduede 5 месяцев назад

Thanks for the interesting content John! It’s potentially an interesting ETF….I might look at the what advantages/downside there is to just implementing the underlying strategy vs the ETF

@OptimizedPortfolio 5 месяцев назад

Glad you found it interesting! Sounds like a great idea!

@surfrduede 5 месяцев назад

@@OptimizedPortfolio After reviewing the underlying strategy, I think it makes sense to just own the ETF at 20 bips when level of effort and options fees are considered. State tax (CA) is a factor for me, so that makes it less attractive vs SGOV,TFLO etc.....but I was unaware of the ETF and appreciate the info. I think it has a good bit of utility for short term cash needs.

@OptimizedPortfolio 5 месяцев назад

@@surfrduede Thanks for sharing!

@TheSimArchitect Месяц назад

I did the same today! So happy that I finally found something like this! I kept asking and looking around and only today I was able to dump my BIL to get this. As I am not a US Person I lose a massive percentage as witheld tax for dividends. No tax on capital gains in my country. Much better.

@OptimizedPortfolio Месяц назад

Thanks for sharing!

@TheSimArchitect Месяц назад

@@OptimizedPortfolio Finding BOXX ETF (from another site, but I found your video shortly after) brought me joy. 🥰

@OptimizedPortfolio Месяц назад

Glad to hear it!

@hoblino 2 месяца назад

I love BOXX. I currently have my short term treasury allocation split equally between VGSH and BOXX.

@OptimizedPortfolio 2 месяца назад

Thanks for sharing!

@mr2981 5 месяцев назад

Excellent video, thank you.

@OptimizedPortfolio 5 месяцев назад

Thanks for watching!

@johnm4390 5 месяцев назад

I'm holding about a third of our Emergency Fund in it right now. As time goes on, I'm likely to build that position. I like the tax-efficient nature of BOXX.

@OptimizedPortfolio 5 месяцев назад

Awesome, thanks for sharing, John! I'm going to start building a position as well.

@ASHANTIGHAZIKHALIF 5 месяцев назад

Thanks very informative.

@OptimizedPortfolio 5 месяцев назад

Glad you thought so!

@kyleskitco7235 5 месяцев назад

I wish this worked for me, but since I'm in California it makes more sense just to invest in t-bills as state tax does exist

@OptimizedPortfolio 5 месяцев назад

Indeed. Thanks for sharing, Kyle.

@marcuscarreiro72 2 месяца назад

Great explanation.. Not sure if I got everything (Brazilian here), but my main reason to think about BOXX is that we pay 30% on every dividend paid by every ETF... If the ETF intent to 'not pay anything on dividend' with the same tflo/sgov ETFs, I think I have a new favorite... 😉 I'll research a bit more about it... Thanks a lot

@marcuscarreiro72 2 месяца назад

I also thought about Irish ETFs but my current broker doesn't have them and I'd have to move to Interactive Brokers and it would be a pain in the a...... :)

@fpivi 2 месяца назад

Someone have been watching Otávio Paranhos... 😂

@marcuscarreiro72 2 месяца назад

@@fpivi actually I've seen a couple of his videos... 😉

@OptimizedPortfolio 2 месяца назад

Thanks for sharing!

@ebrahimhabib477 5 месяцев назад

Great video, very good information Regards from Egypt

@OptimizedPortfolio 5 месяцев назад

Thanks!

@Michael-DS 5 месяцев назад

Could you please do a video detailing how to borrow money using box spreads?

@OptimizedPortfolio 5 месяцев назад

Thanks for the suggestion!

@mlovidius 4 месяца назад

Thank you, this is a god send for me! I have almost 80K in capital gain losses and recently, left a money manager charging 1.5%. He made 14K in my time with him, I made 3K :) when I left I left with only cash in all accounts. I will go slowly into ETFs over the next several months and will have a large cash holding that I can now use BOXX to use my Capital gain losses. From you video, it sounds like BOXX is risk free and in my case tax free for a while. :)

@OptimizedPortfolio 4 месяца назад

Glad it helped!

@digilifepro 2 месяца назад

You're the 2nd person who has mentioned long term capital losses and how this strategy helps with that. I don't follow at all. Could you break it down a bit more? Cheers

@OptimizedPortfolio 2 месяца назад

@@digilifepro I believe this person is referring to tax loss harvesting: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-i6GW7ONm168.html

@ThomasMcCreary-l6n 19 дней назад

I was in this ETF before but this brought me to your RU-vid channel. Do you have securities you recommend that have similar structure, the only big diversified non-dividend stocks that come to mind are Berkshire Hathaway, are there others you recommend or ETFs for that matter?

@OptimizedPortfolio 19 дней назад

Not sure I understand your question.

@eldersprig 5 месяцев назад

remembered the article you wrote about investing the emergency fund. Substituting BOXX for VGSH, gives higher CAGR and Share ratio. Only a year's worth of data so probably not important.

@OptimizedPortfolio 5 месяцев назад

Good point. I may incorporate it in there, or I may just leave that one to be pretty simple and approachable. BOXX alone is arguably hard enough to wrap one's head around. VGSH is also longer than T-Bills, though.

@danielowen9210 5 месяцев назад

Is the return on boxx expected to rise or fall when the yield on T-bills rises and falls, or is the box spread return independent of interest rates?

@OptimizedPortfolio 5 месяцев назад

Great question, Daniel. I forgot to explicitly mention that in the video. We would indeed expect the return of BOXX to rise and fall with T-bills yield. Check out the graph at 4:17 showing that box spread rate closely following T-bill rates. Like I noted, we would expect it to always be a little bit higher.

@romansole114 4 месяца назад

Hey! Thanks for highlighting this great tool Against SGOV, it has tax benefits cause you save the 30% of the dividend distribution? (Im not a US investor, I believe I cannot avoid paying that 30% tax over dividends) :)

@OptimizedPortfolio 4 месяца назад

Yes, primary benefits are cap gains over income and the deferral/avoidance thereof.

@DaJonez24 5 месяцев назад

Interesting product. A few unrelated questions, thoughts maybe: If Uncle Sam understands the ETF's purpose, is there any risk of them regulating a fund like this out of business? The government likes their money. Point 2, if/when interest rates drop, will anybody care about any of these options anymore? In other words, is the money savings for a short period of time worth the effort? Seriously considering despite the comments above. Appreciate all thoughts, thanks!

@OptimizedPortfolio 5 месяцев назад

Yea, always a risk of future changes in regulations and tax laws. Point 2: Sure. We always need a place for short term cash and emergency fund.

@brandonmiddendorf6415 5 месяцев назад

Would BOXX have a noticeable impact over a HYSA or SGOV for those not in a high tax bracket ? Or would it be close to a wash due to the lower income tax rates ?

@OptimizedPortfolio 5 месяцев назад

Great question. Definitely! Consider someone making about $40k/yr. In 2024, their marginal tax rate on HYSA or SGOV distributions would be 12%, but LTCG rate for that person would be zero. Suppose $1,000 in effective interest over 1 year. HYSA or SGOV would incur a tax bill of $120, even if it's just reinvested. BOXX would [hopefully] have no distributions (like for 2023) and if the investor wanted to realize gains, their LTCG rate again is zero, so zero taxes.

@digilifepro 2 месяца назад

I know this is about tax savings but just for the info I ran BOXX v SGOV thru ETF Return Calc for Jan 2023 - present and you get: SGOV = 5.23% Return BOXX = 5.12% Return Pretty close then add in tax strategy, looks good! Cheers

@OptimizedPortfolio 2 месяца назад

Is ETF Return Calc a particular tool? I'm getting different results with PV as I showed in the video: www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=5cmgcNQyxCBsKdC15MCaJG

@rlmint 2 месяца назад

What if you are in a high tax state like New York or California, etc.? Also, how did BIL perform during that period?

@OptimizedPortfolio 2 месяца назад

@@rlmint Again, BOXX has less of an edge for high tax states, so consult your tax professional on the comparison. BIL is basically the same thing as SGOV but with a higher fee.

@Jim-mz1cf 5 месяцев назад

This is a great video, but with the tax rates we face in MN, our marginal tax rate with boxx would be about 2.6% higher than with tbills

@OptimizedPortfolio 5 месяцев назад

Thanks for sharing. Even when considering LTCG after a year?

@Jim-mz1cf 5 месяцев назад

@@OptimizedPortfolio Yes, based on 60% long term and 40% short term CG, which is what I thought you said. Federal 22% marginal, 15% LTCG, 6.8% state, bumping up to 7.85% state.

@OptimizedPortfolio 5 месяцев назад

The 60/40 is for any distributions, so I guess it comes down to whether or not BOXX is able to avoid them, which we can't know for sure ahead of time. But that's the plan. It had no distributions for 2023. If you could hold for a year, then anything you sell would just be LTCG. But of course you might need your emergency fund within a year. So a murkier comparison indeed.

@Jim-mz1cf 4 месяца назад

@@OptimizedPortfolio assuming 100% LT, 15%+6.8%=21.8%, vs 22% (tbills are state tax exempt), so if there are 0 short term gains and I manage to stay out of the 7.85% bracket, a 0.2% gain is best case.

@Jim-mz1cf 4 месяца назад

There would be more benefit for people whose income is higher.

@riskparitychronicles 5 месяцев назад

Great review - next, how about a review of CAOS? That holds 60% or so of BOXX and takes the other 40% and buys deep out of the money puts on the S&P, thereby providing tail protection. In good times, gives you 60% of BOXX, but then added oomph in case of quick market drawdowns. For investors who use cash holdings as a dry powder fund, makes a lot of sense! If you need a place to store cash, BOXX is my choice, too, but taking it one step farther, iof you need a place to store cash in order to buy equities at opportune times, CAOS it is.

@OptimizedPortfolio 5 месяцев назад

Been meaning to get around to CAOS for a while.

@Crud_3 4 месяца назад

@@OptimizedPortfolioI'd appreciate a video reviewing CAOS

@OptimizedPortfolio 4 месяца назад

@@Crud_3 On my list to get to at some point!

@OptimizedPortfolio 3 месяца назад

Forgot to tag you on Twitter. You might enjoy my newest video from a risk parity perspective: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-i2nGUaWpUzs.htmlsi=YJslAhfCDTrYvamq

@riskparitychronicles 3 месяца назад

@@OptimizedPortfolio Thanks! I like the desert portfolio, but... I'd lever it up! 15% GDE, 30% EDV, 30% RSBT and 25% RSST, to make it 38% stocks, 60% bonds (with more duration risk), 55% trend and ~13% gold. same basic portfolio, but +68% extra leverage. That 3:6:1 is a really sturdy frame on which to build.

@timothyhoytbsme 27 дней назад

How does early exercising play into this fund?

@OptimizedPortfolio 26 дней назад

Again, European options so no risk of early assignment.

@piratehussam 5 месяцев назад

Is it still relevant to international Investors? Where we pay only Long-term capital gains tax?

@OptimizedPortfolio 5 месяцев назад

Possibly. Consult your tax professional.

@theoliverpuma 4 месяца назад

So straddling the S&P 500 for the long term

@OptimizedPortfolio 4 месяца назад

Doesn't necessarily have to be for the long term. However you long you want to invest cash until you need it.

@pavXX 5 месяцев назад

smart strategy

@OptimizedPortfolio 5 месяцев назад

Indeed

@viktorivanov2569 5 месяцев назад

Why not just use Irish UCITS accumulating ETFs for TBills?

@OptimizedPortfolio 5 месяцев назад

U.S. citizens can't buy accumulating funds.

@JosephDickson 5 месяцев назад

Sounds good but wrapping my head around it is another story. If I don't understand exactly what's happening with my emergency fund I'm not gonna risk it.

@OptimizedPortfolio 5 месяцев назад

Can't argue with that, Joseph!

@BrianTX409 4 дня назад

My income from all sources is below the government threshold of $47K so I pay 0% capital gains taxes. And still aggressively investing at 62 years young.

@OptimizedPortfolio 4 дня назад

Thanks for sharing! Good luck!

@jiti5034 2 месяца назад

What if US tax does not apply?

@OptimizedPortfolio 2 месяца назад

Consult your tax professional.

@christopherwilliams6191 5 месяцев назад

Thanks John, but what about tracking error stemming from both 1) drift between the S&P and the risk-free rate and 2) drift between the spread and the underlying S&P value? The S&P won’t perfectly approximate the risk-free rate nor will the spread perfectly approximate the S&P’s movement over the same period, right?

@OptimizedPortfolio 5 месяцев назад

The value of the S&P is irrelevant to the box spread trade. It's just used because it's a highly liquid index.

@coinbowl 5 месяцев назад

I don’t understand calls or puts

@OptimizedPortfolio 5 месяцев назад

While I'm certainly usually a fan of understanding what you're buying and why you're buying it, recognize that you don't need to understand calls or puts in order to benefit from this fund. That's why it was created - so that investors don't have to go manually implement box spreads on their own.

@JonTheDisciple 5 месяцев назад

Unless I'm missing something, I think SGOV would be better in the short term and BOXX for the long term. Also one for tax advantage and the other for taxable

@OptimizedPortfolio 5 месяцев назад

A closer toss up over the short term, but BOXX still probably comes out ahead due to its ability to avoid distributions. At worst, STCG would be at one's marginal tax rate, same as SGOV's interest.

@thebeattielife9528 5 месяцев назад

*head explodes*

@OptimizedPortfolio 5 месяцев назад

🤯

@johnknight6965 5 месяцев назад

What is the actual tax benefit with BOXX compared to T-bills?

@OptimizedPortfolio 5 месяцев назад

I explained that in the video. Cap gains over income and avoidance/deferral of distributions.

@erdrick22 5 месяцев назад

Optimized Portfolio:This is what a Roth IRA is. Also Optimized Portfolio: BOXX is an arbitrage investment in a wrapper you can spend a weekend attempting to understand. Hey I'm not complaining its this sudden depth that I like about the channel !

@OptimizedPortfolio 5 месяцев назад

Thanks for watching! Remember though that a Roth IRA incurs penalty and taxes on early withdrawal of earnings, so not really the same thing, though one could arguably use their Roth contributions as an emergency fund.

@OptimizedPortfolio Месяц назад

Circling back here, I realize I must have misunderstood the joke you were going for originally. I like it! 😂But yes I've thought about that exact thing, like I wonder if the "What is a Roth IRA?" video viewer cares about the BOXX video and vice versa. But I do want to have a range of content for both novices and seasoned investors.

@erdrick22 Месяц назад

@@OptimizedPortfolio its all good I figured it was a poor joke or you were busy that day

@mere_cat 5 месяцев назад

Not sure I fully understand this product enough to invest. Sounds almost too good to be true.

@OptimizedPortfolio 5 месяцев назад

That's what I thought at first too.

@mere_cat 4 месяца назад

@@OptimizedPortfolio does that explain the perplexed look in the thumbnail? 😂

@OptimizedPortfolio 4 месяца назад

@@mere_cat Hah totally!

@JustAlf87 2 месяца назад

Every about the word synthetic gives me PTSD from 2008

@OptimizedPortfolio 2 месяца назад

Different context here.

@鱼眼儿看美股 5 месяцев назад

Thanks, sounds a little bit complicated. I am using $HIGH to park cash in my IRA account. 9% yield after expense, almost no risk.

@djayjp 5 месяцев назад

Yeah HIGH has 50% higher total return than BOXX.

@vinnv226 5 месяцев назад

HIGH is selling call spreads on gold miners, Chinese internet stocks, oil and gas companies, and the Russel 2000. Definitely not "almost no risk," and I wouldn't call it less complicated than box spreads either.

@OptimizedPortfolio 5 месяцев назад

As the other user noted, HIGH is arguably more complicated and certainly riskier than BOXX. It also throws off distributions monthly, and here with BOXX the main benefit is the tax efficiency. HIGH's 30 days SEC yield is also 4.82% as of January 2024, which is less than SGOV.