Evaluating A Money Market Fund
A money market fund is a type of fixed income mutual fund with very stringent maturity, credit quality, diversification, and liquidity requirements intended to help it achieve its goals of principal preservation and daily access for investors. Customers should determine when picking a money market fund that its characteristics align with their investment objectives and strategy.
- The objective for many money market funds is typically to provide current income consistent with principal preservation
- U.S. Treasury and government money market funds potentially can offer a lower credit risk and return profile than prime money market funds
- Municipal money market funds may be appropriate for nonretirement accounts that are not already tax-shielded
Money Market Funds With Low Costs And High Returns
We noticed a few patterns when comparing the best money market mutual funds on our list.
First, when it comes to expense ratios, many of the funds with the highest fees also require very significant minimum deposits. The one exception: Fidelity Money Market Fund , which is the only one on this listing with no minimum deposit requirement.
The reality of the current low-rate environment is that money market fund yields are minimal. When it comes to the funds on our list, few offer a seven-day yield that much above zeroall but one yield less than 0.10%.
Theres just one money market fund that stands out in terms of cost, yield and minimum investment: Invesco Premier Portfolio Fund . If you can meet the $1,000 minimum investment size, IMRXX offers a combination of relatively high returns with low expenses.
American Century Capital Preservation Fund
The American Century Investments Capital Preservation Fund Investor Class was launched by American Century in 1972, and has over $2.22 billion in total assets under management , as of June 2021. The fund is primarily known for maximizing safety and liquidity. The fund aims to achieve the highest possible yield return consistent with its asset mix, which consists of Treasury bills, bonds, and notes. The fund ordinarily invests solely in short-term U.S. Treasury money market securities. The weighted average maturity of its portfolio holdings is 58.55 days.
The gross annual expense ratio for the Capital Preservation Fund was 0.48% as of May 2021. Its one-year total return as of December 2020 was 0.01%. This mutual fund is appropriate for investors whose current investment goals align with those of the strategy and who seek a pure-play government money market fund that invests exclusively in U.S. Treasury securities.
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Ive Recently Moved Outside The United States What Does That Mean For Me
Regardless of where you move, the following applies:
Fidelity does not provide discretionary asset management services to customers who reside outside the United States. If you move outside the United States, your discretionary asset management relationships will be terminated, and certain mutual funds held in those accounts may be liquidated as part of that termination.
The services provided by our representatives are limited to those that are ministerial or administrative in nature. Among other things, this means that our representatives do not engage in discussions with customers about such topics as asset allocation, income planning, or portfolio composition.
Customers residing outside the United States will not be allowed to open new 529 Savings Plan Accounts or Health Savings Accounts , or to continue to contribute to existing 529s or HSAs.
Customers residing outside the United States will not be allowed to purchase shares of mutual funds.
There are additional restrictions that may apply, depending on the country where you now reside. Customers in certain countries may be limited to selling their existing holdings and withdrawing the proceeds from their accounts. They will not be able to make deposits in their accounts, or buy any additional securities. In most other countries, the restrictions will be less onerous, but customers may still experience certain limitations .
Money Market Fund Disadvantages
You pay for safety. The lower the risk on an investment, the lower your chances of making high returns. Money market funds tend to pay less interest than bonds. Before considering how to get the highest yield possible, the primary purpose of any money market fund is to preserve capital. In practice, this means the yield remains extremely low, just barely above what you would get in a savings account at your bank.
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Are All Of Fidelitys Products And Services Available To Customers Residing Outside Of The United States
No, our product and service offerings for customers and prospective customers who reside outside of the United States are limited. While the questions below provide a general overview of those limits, because so much is dependent on the particulars of your specific situation, we suggest you call us at 800-343-3548 to learn about how they apply to you. If you are calling us from outside the United States, please visit Fidelity Phone Numbers, For Customers Traveling Abroad to see a list of available international phone numbers available.
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How Do I Give Someone Else The Right To View Or Transact In My Account
You can add a trading authorization to allow another person to trade in your account:
- Limited trading authorization allows buying or selling securities in your account.
- Full trading authorization allows buying and selling securities as well as withdrawing money from your account. Full trading authorization has limitations for some types of accounts.
To get started, fill out a form available in account access rights.
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Why Are Money Market Funds A Good Option
Money market funds can be a highly useful tool for holding the cash component of your investment portfolio. The key advantage of money market funds is the fact that they are highly liquid investments.
Take a real estate investment property, for example. Real estate may offer rich returns over the long term, but its a highly illiquid investment as it would require at least a couple of months to sell a property and get cash. A savings account, on the other hand, is highly liquidyou can just go to an ATM to get cash.
Money market funds offer higher liquidity than certificates of deposit and Treasury bills while also offering ultra-low risk. Unlike CDs, which you generally need to hold to maturity to cash out without penalty, money market funds dont have maturities and can be liquidated on demand. You can sell Treasury bills on the secondary market with ease, but its also possible to take a loss on the sale.
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How Is My Account Protected
Protecting your account assetsFidelitys brokerage businesses are members of the Securities Investor Protection Corporation , and brokerage accounts maintained with Fidelity are covered by SIPC, which protects brokerage accounts of each customer when a brokerage firm is closed due to bankruptcy or other financial difficulties and customer assets are missing from accounts.
SIPC protects brokerage accounts of each customer up to $500,000 in securities, including a limit of $250,000 on claims for cash awaiting reinvestment. Money market funds held in a brokerage account are considered securities.
In addition to SIPC protection, Fidelity, through NFS, provides its brokerage customers with additional excess of SIPC coverage from Lloyds of London together with Axis Specialty Europe Ltd. and Munich Reinsurance Co. The excess of SIPC coverage would only be used when SIPC coverage is exhausted. As with SIPC, excess of SIPC protection does not cover investment losses in customer accounts due to market fluctuation. It also does not cover other claims for losses incurred while broker-dealers remain in business. Total aggregate excess of SIPC coverage available through Fidelitys excess of SIPC policy is $1 billion.
Furthermore, we also offer protection for your assets in the case of unauthorized activity in your account. For more information, please see our Customer Protection Guarantee.
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Vanguard Federal Money Market Fund
Vanguard launched the Vanguard Federal Money Market Fund in 1981. Total AUM as of May 2021 is $193.8 billion. This fund has the same investment aims of providing capital preservation and current income through investing in high-quality, short-term U.S. government securities.
Vanguard bills this fund as one of the most conservative offerings in this category, making it an ideal choice for conservative seeking risk avoidance and capital preservation.
As of May 2021, the funds top allocation was to U.S. Treasury Bills at 75.4%, followed by U.S. Government Obligations at 23.6% and Repurchase Agreements at 1.0%. The average maturity of the portfolio holdings was 55 days. The expense ratio for the Vanguard Federal Money Market Fund is 0.11% the dividend yield is 0.02%, and the one-year total return is 0.45%.
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Money Market Fund Advantages
Money market funds invest in the short-term debt of the United States government: This means treasury bills, which mature much sooner than treasury bonds. The short-term nature of this investment allows the fund to adjust to rising interest rates. When the fund gets its money back from short-term investments, the money manager can quickly reinvest the money in T-bills that pay higher interest. Your money remains relatively safe because the investment is backed by the U.S. Treasury, and your income goes up as interest rates rise.
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Best Money Market Funds Methodology
The best money market funds offer a combination of positive yield, low risk and a low expense ratio. To make our selection, we combed through the list of money market mutual funds at MutualFunds.com and identified nine with the highest yields, lowest expenses and a minimum investment balance of $1,000,000 or lower.
Note that the seven-day yield is an industry standard for side-by-side comparisons of money market funds. It takes into account fund distributions plus appreciation, minus average fees over a seven-day period, and assumes that this average continues over an entire year.
When you are selecting a money market fund, make sure you can meet the minimum investment balance. In addition, its important to understand the investments held by each fund. Carefully research your options before making a decision.
And keep in mind that when it comes to investing, past performance is no guarantee of future results.
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Us Reform: Sec Rule Amendments Released July 24 2014
The Securities and Exchange Commission issued final rules that are designed to address money funds susceptibility to heavy redemptions in times of stress, improve their ability to manage and mitigate potential contagion from such redemptions, and increase the transparency of their risks, while preserving, as much as possible, their benefits.
There are several key components:
Floating NAV required of institutional non-government money funds
The SEC is removing the valuation exemption that permitted these funds to maintain a stable NAV, i.e., they will have to transact sales and redemptions as a market value-based or floating NAV, rounded to the fourth decimal place .
Fees and gates
The SEC is giving money fund boards of directors the discretion whether to impose a liquidity fee if a funds weekly liquidity level falls below the required regulatory threshold, and/or to suspend redemptions temporarily, i.e., to gate funds, under the same circumstances. These amendments will require all non-government money funds to impose a liquidity fee if the funds weekly liquidity level falls below a designated threshold, unless the funds board determines that imposing such a fee is not in the best interests of the fund.
Other provisions
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Types Of Money Market Funds
The types of debt securities held by money market mutual funds are required by federal regulation to be very short in maturity and high in credit quality. All money market funds comply with industry-standard regulatory requirements regarding the quality, maturity, liquidity, and diversification of the funds investments. Investments can include short-term U.S. Treasury securities, federal agency notes, Eurodollar deposits, repurchase agreements, certificates of deposit, corporate commercial paper, and obligations of states, cities, or other types of municipal agenciesdepending on the focus of the fund.
| Fund type | |
|---|---|
| known as tax-exempt) | |
| National municipal | Normally at least 80% of the funds assets are invested in municipal securities whose interest is exempt from federal income tax. |
| State municipal | Normally at least 80% of the funds assets are invested in municipal securities whose interest is exempt from federal and state personal income taxes. |
* A repurchase agreement is an agreement to buy a security at one price and a simultaneous agreement to sell it back at an agreed-upon price.
What Do The Different Account Values Mean
| Balance |
|---|
Total account value
| Total account value | The total market value of all positions in the account, including core, minus any outstanding debit balances and any amount required to cover short options positions that are in-the-money | Real-time |
| Cash | Account settlement position for trade activity and money movement. Executed buy orders and cash withdrawals will reduce the core, and executed sell orders and cash deposits will increase the core. | Overnight |
| Cash credit/cash debit | A cash credit is an amount that will be credited to the core at trade settlement. A cash debit is an amount that will be debited to the core at trade settlement. | Intraday |
| Held in cash | The total market value of all long cash account positions. This figure is reduced by the value of any in-the-money covered options and does not include cash in the core position. | Real-time |
Cash available to withdraw
| Cash available to withdraw | Amount collected and available for immediate withdrawal. This balance includes both core and other Fidelity money market funds held in the account. This balance does not include deposits that have not cleared. Sell orders are reflected in this balance on settlement date and buy orders are reflected on trade date. | Intraday |
| Cash | Account settlement position for trade activity and money movement. Executed buy orders and cash withdrawals will reduce the core, and executed sell orders and cash deposits will increase the core. | Overnight |
Options balances
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Surprisingly High Inflation Can Be A Challenge
Some inflation is normaland even good because it means the economy is growing. But inflation doesn’t always behave the way it’s expected to. If it’s higher than expected or stays at an elevated level for a longer time than markets expect, managing investments can get tricky.
“Surprisingly high inflation can be a challenge for investment portfolios for 2 reasons: First, both bonds and stocks typically perform less well in a more inflationary environment. Second, stock-bond correlations tend to rise when inflation is higher. So bonds may provide less diversification benefits in that kind of environment,” Hofschire says.
Stock-bond diversification highest when inflation is tame
Past performance is no guarantee of future results.
Government And Treasury Money Funds
- 7-day yield as of 03/04/20224
- Minimum Initial Investment
- Schwab Government Money Fund Investor Shares
- 7-day yield as of 03/04/20224 0.01%
- Schwab Government Money Fund Ultra Shares
- 7-day yield as of 03/04/20224 0.01%
- Schwab Treasury Obligations Money Fund Investor Shares
- 7-day yield as of 03/04/20224 0.01%
- Schwab Treasury Obligations Money Fund Ultra Shares
- 7-day yield as of 03/04/20224 0.01%
- Schwab U.S. Treasury Money Fund Investor Shares
- 7-day yield as of 03/04/20224 0.01%
- Schwab U.S. Treasury Money Fund Ultra Shares
- 7-day yield as of 03/04/20224 0.01%
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Risks Of Money Market Funds
- Unlike typical bank certificates of deposit or savings accounts, money market mutual funds are not insured by the Federal Deposit Insurance Corporation although money market mutual funds invest in high-quality securities and seek to preserve the value of your investment, there is the risk that you could lose money, and there is no guarantee that you will receive $1 per share when you redeem your shares
- Inflation risk Because of the safety and short-term nature of the underlying investments, money market mutual fund returns tend to be lower than those of more volatile investments such as typical stock and bond mutual funds, creating the risk that the rate of return may not keep pace with inflation
Prime money market funds:
- Foreign exposure Entities located in foreign countries can be affected by adverse political, regulatory, market, or economic developments in those countries
- Financial services exposure Changes in government regulations, interest rates, and economic downturns can have a significant negative effect on issuers in the financial services sector, including the price of their securities or their ability to meet their payment obligations
All prime and municipal money market funds:
- Liquidity risk The fund may impose a fee upon the sale of your shares, or may temporarily suspend your ability to sell shares, if the funds liquidity falls below required minimums because of market conditions or other factors
Their Holdings May Include Debt Issued By The Likes Of Bear Stearns Freddie Mac And Some Other Less
In stressful times, you may hear advisers and strategists recommend that investors raise their allocations to cash. There are two reasons for doing so. First, cash, which is presumably risk free, protects your portfolio from losses. Second, raising cash builds reserves you can use to buy stocks, junk bonds or other assets at lower prices once the backdrop brightens.
But just what is cash? And is it as safe as it appears to be?
In finance, cash is more than the green paper you carry in your wallet. The financial worlds definition of cash sometimes its referred to as cash equivalents is any investment with a fixed value that is easy to buy and sell.
This includes Lincolns and Hamiltons as well as savings and checking deposits and shares of money-market mutual funds. Short-term certificates of deposit and U.S. Treasury bills also count. The bedrock assumption is that if you invest $1 in any of these forms, your investment is worth $1 anytime, no questions asked.
But financial engineers have also invented all sorts of other cash equivalents. These are short-term interest-earning investments that are designed to maintain a stable value thats behind the comparison to cash but that are not necessarily liquid and not guaranteed by the government.
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