Money Market Funds Amid Ultra-Low Interest Rates
Institutions and individual investors often employ money-market funds as a way to invest assets for a very short period of time when they would like to achieve a nominal return that’s above zero while theoretically shielding their money from short-term volatility. While this is typically not an appropriate allocation for most investments that have a time horizon of over a couple years, it can often be a convenient way to stash money that will be needed in the short term.
However, interest rates recently fell so low that several money-market funds have been forced to waive fees just to keep rates non-negative. As this article notes, “seven-day net yields for the average money fund slid to 0.05% in July from 1.31% at the end of 2019, according to research firm Crane Data.”
The appropriate level of allocation to money-market funds going forward will depend in part on the future movement of interest rates, and on how money funds respond in an attempt to remain competitive.
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- Anthony Winkels is Managing Partner and wealth advisor at Fortis Wealth Management
