Marc Cuniberti As inflation and world events unfold, in recent editions of Money Matters, I felt it necessary to cover Treasury bills, Cd’s, savings and checking accounts, guaranteed annuities and similar investments that may not have the volatility or risk of being in the stock market.
As uncertainty reigns on Wall Street, down Main Street and indeed, across the globe, some investors are tiring of the stress of being in the market and pulling out of stocks altogether.
I really can’t blame them. Watching portfolio balances drop day after day can be quite unnerving.
It’s the reason I have offered up less risky alternatives recently like those mentioned above.
Some of these alternatives have some sort of fixed rate return that attempts to freeze the higher interest rates of today. Others have rates that float, affected by the ebb and flow of the overall interest rates in the economy. More importantly, the investments I have profiled in the past may also offer some sort of protection of principal versus stocks.
Today’s higher interest rate returns are due to the Federal Reserve’s crusade to increase rates to address inflation. Although today’s interest rates are refreshingly higher than what we have since in recent decades the problem with today’s rates is they may not stay high forever. While they do however, investors can be treated to some nice returns, and in many cases over 5% APR.
With these higher rates in place, yet another investment has popped up on my screen that I think is worth considering for those wishing to avoid the stock market yet target a decent return on ones money.
Today’s profile is on a U.S. Treasury money market fund that currently yields about 5.2% APR. Investors might think a money market fund is where brokerage firms park your excess funds when you have excess cash in your stock account. But that mechanism typically utilizes what is called a money market account, not a money market fund.
Whereas a money market account is generally insured by the FDIC, money market funds are not. Funds are sponsored by the investment company that offers it. Money market funds are typically regarded by most investors as relatively safe investments, but it is possible to lose money because they aren’t FDIC insured, nor are they guaranteed by the U.S. government or a government agency.
A quick search on the web gives us this description about money market funds:
Unlike stock or bond funds, they (money market funds) have a fixed price of $1 per share. That means your account value shouldn’t change other than any growth from your earnings—these funds are intended not to lose money. While all money market funds have the same share price, their yields will vary.
For example, the popular brokerage firm Charles Schwab offers a variety of money market funds as do other financial institutions. Charles Schwab has SPIC insurance, a standard brokerage firm insurance mechanism protecting against a brokerage firm going under. But be aware this insurance does not cover the actual investment like a money market fund, stock or bond if a partial or total default occurs.
However, the particular fund I am referring to, being a U.S. Treasury fund, typically invests in securities backed by the full faith and credit of the U.S. government which is one reason why I am profiling it.
The yield of this particular U.S. Treasury money market fund is about 5.2% at the time of this writing and the yield is based on the previous 7 days. This yield can vary depending on the interest rate environment it is subject to. This money market fund credits daily and with a par rate of a dollar, given the alternatives available, and that its holdings typically encompass securities backed by Uncle Sam, one could do worse.
Considering today’s markets, ongoing global events, today’s inflation rate, the risk of stocks and bonds, how the fund is constructed in its holdings, its frequency of payout and the company backing it, investors who are looking for a way to earn a healthy yield yet want to minimize risk in their portfolio might look no farther than this U.S. Treasury fund.
“Watching the markets so you don’t have to”
This article expresses the opinion of Marc Cuniberti and is not meant as investment advice, or a recommendation to buy or sell any securities, nor represents the opinion of any bank, investment firm or RIA, nor this media outlet, its staff, members or underwriters. Mr. Cuniberti holds a B.A. in Economics with honors, 1979, and California Insurance License #0L34249 His insurance agency is BAP INC. insurance services. Email: [email protected]
