HIPOS Expiration Update: What’s with the 2-year Treasury Bond in My Taxable HiPOS account?
By Mick Brokaw
Treasury Bonds in Taxable HIPOS Accounts
We have received several questions asking why we placed Treasuries into the HiPOS Conservative accounts. A few things to cover here. First, this is only in the taxable conservative version of HiPOS accounts. The taxable accounts provide an opportunity to augment returns now that interest rates have risen over the past two years. Qualified/IRA HiPOS accounts or the aggressive version of HiPOS did not receive any Treasuries.
To explain why, it all comes down to the margin requirements of brokerage firms, in this case TD Ameritrade. TD Ameritrade only holds an 8% requirement for the entire Treasury position. That leaves 92% of the margin requirement left in the account for HiPOS. Therefore, we receive return on the entire treasury position AND we can place HiPOS trades in 92% of the account. Considering the 2-year Treasury Bonds yield around 2.75% these days, basically 8% of the account is making 2.75% per year in a US Government Bond which is very low risk. In addition, the accounts will receive 92% of the HiPOS conservative strategy.
We hope that makes sense. Let us know if you would like more detail.