Do Money Market Funds Still Make Sense?

Question:

I’ve listened to you for a while now and know you make considerable fun of money markets paying “point 00000001%” on your money. Do money markets make sense anymore?

Answer:

We believe money market funds are only for the very short-term, when an investor wants to make sure his money doesn’t fluctuate, as they strive to maintain a set $1 share price. They are paying 0.01% a year—that is $1 a year on a $10,000 investment. If an investor can weather a little more volatility, a short-term bond fund may yield a little more.

At the end of January, 2014, the U.S. Treasury brought a two-year floating rate bond to market. Its interest rate is tied to the three-month Treasury bond, so it resets to par every three months. It has become popular among money market fund investors as it is paying 0.1%–10 basis points more than a money market fund. As long as the bond continues to reset, an investor should be fine. If the three-month Treasury interest rate were to rise 1% in three months, an investor would lose 12% if he had to sell within the three months before it resets.

However, we are still evaluating the floating-rate Treasury. At Henssler Financial we believe you should Live Ready, and that includes knowing where to invest your short-term funds. If you have questions regarding your financial situation the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.

Disclosures

This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.