At the same time, and for various reasons, some brokers have sharply reduced the number of MMFs available via their platforms. The upshot is that some money market funds have been discontinued, such as the long-reliable Vanguard Prime, a fund we recommended for many years. In addition, government rules imposed after the 2008-2009 financial crisis have increased regulatory pressure on the MMF business. In an environment of super-low rates, MMFs aren’t enticing to investors or all that profitable for fund companies, so it’s not surprising the number of MMFs available to retail investors is fewer today than a few years ago. These funds have a lower return than other money market funds due to their tax-exempt status. Tax-exempt Funds: These funds invest in municipal bonds and other securities which are free from federal income taxes and often state taxes. All investments have to be collateralized by cash and cash equivalents like U.S. Government Funds: Government funds invest 99.5% of their assets in cash, Treasury securities and repurchase agreements. government agencies, corporations and government-sponsored entities. Prime Funds (also called General Purpose Funds): They invest in non-Treasury securities like floating-rate debt and commercial paper of U.S. Treasury Funds: These funds invest in Treasury bills, bonds and notes that are frequently traded. This kind of mutual fund invests in short-term debts from governments, banks, and corporations. If you’re not familiar with money market funds, an MMF is a type of mutual fund (don’t confuse money market funds with bank-offered money market accounts). Looking specifically at "retail" funds (as opposed to funds geared to the "institutional" market), Crane reported that "Treasury Retail MFs currently yield 0.22% (up.16 bps in May), Government Retail MFs yield 0.21% (up.17 bps in May), and Prime Retail MFs yield 0.42% (up.28 bps for May)." The MMF landscape In February, that average was just 0.02%, the exact bottom-of-the-barrel spot where it had remained for two years! As of last Thursday (5/19), Crane Data reported that the average "7-day-yield" on the 100 largest taxable money market funds (MMFs) stood at 0.53%. As rates finally get up off the floor, that recommendation is starting to make sense again. In the past, we have recommended holding uninvested cash in a money market fund (MMF). After all, some brokerage sweep accounts are still paying 0.01% (that works out to $1 a year on a $10,000 investment!). Our suggestion has been to hold that cash in your brokerage sweep account, but with rates starting to move up, you may want to consider other options. SMI’s Stock Fund Upgrading strategy currently has three positions "in cash," one in each of our three Upgrading risk categories. With interest rates near record lows, there wasn’t much to write about! Every option was unattractive.īut with rates rising, the picture is starting to change - if only slightly thus far. It’s been a long while since we’ve written about cash options in a brokerage account. While the rates listed here are long outdated, the vehicles mentioned are worth investigating as they tend to be "best of class." Rates are constantly changing, so do your homework, but these vehicles are a good place to start your search. Editor's Note: Yields have risen markedly since this article was written in May 2022.
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