Cash No Longer Trash
MONEY MARKET YIELDS are no longer zero. Far from it. With the Federal Reserve raising short-term interest rates by another 0.75 percentage point last week, investors can now park their savings in a safe money-market mutual fund and earn more than 2%.
If you look at Vanguard Federal Money Market Fund (symbol: VFMXX), you won���t see a seven-day SEC yield that���s that high���yet. But give it a few days. Right before the Fed���s move last week, Vanguard���s money market fund yielded 1.5%. Add 0.75 percentage point to that figure, and you���ll get a sense for where we���re headed.
For folks with accounts at Fidelity Investments, another option is Fidelity Money Market Fund (SPRXX). The last time I reviewed Fidelity���s policies, it doesn���t allow that fund to be a default core cash position. Instead, you must opt to purchase the fund���s shares, just like you would any other fund. That means there���s an extra step to get the fund's higher yield, versus Fidelity Government Money Market Fund (SPAXX), which has a lower SEC yield but can be used as a default cash position. I stumbled across a Fidelity Institutional page that lists a ���one-day��� SEC yield of 1.96% for Fidelity Money Market Fund as of July 29.
Earlier this year, I suggested people consider a short-term Treasury bond fund for their emergency savings. At the time, the yields on those funds were attractive relative to bank money market accounts and online savings accounts. I took my own advice. As it turns out, I was early with that call. Rates rose through mid-June, leading to modest share-price declines among the Treasury funds I mentioned in March. But now, with Treasury note yields declining over the past seven weeks while the Fed hikes short-term rates, I decided to make a switch.
Late last week, I exchanged my emergency money, which had been sitting in Fidelity Short-Term Treasury Bond Index Fund (FUMBX), to Fidelity Money Market Fund. My plan now is to keep my cash in that money market fund through at least early 2023. That���s when traders see the Fed���s rate-raising campaign peaking in the 3.25% to 3.5% range. Thanks to the Fed���s actions and a Treasury yield curve that���s the most inverted it���s been since 2000, money-market mutual funds look like a relatively good deal���one that comes with little risk.
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