Is It Time To Start Selling Your Money Market Funds? #194

Retire With Ryan

The Federal Reserve Met on 3/20/24 to discuss monetary policy and whether or not to raise or lower interest rates. They announced that they won’t make any changes. Most experts believe that they’ll lower interest rates in June.

So should you start selling your money market funds and short-term bond funds? When should you do it? Should you move the money into something that could benefit from decreasing interest rates? In this episode, I’ll discuss why we invest in money market funds, if you should move your money out, and where you should consider shifting it.

You will want to hear this episode if you are interested in...

• [1:13] Sign up for the Retirement Readiness Review!
• [1:41] Why should you invest in money market funds?
• [4:33] Why move money out of your money market fund?
• [6:30] What might make money market rates fall?
• [8:42] What do you buy to replace money market funds?

Why should you invest in money market funds?

Money market funds should be considered part of your overall asset allocation. We look at money in terms of buckets. You need some money in risky buckets to grow your money to pace against inflation (stocks, commodities, real estate investment, high-yield corporate bonds, etc.). The other money is your “safe” money (cash, money market funds, government bonds, short-term corporate bonds, etc.).

I’ve been recommending that you move money from your bank or other low-yielding accounts and move them into money market funds for the last year and a half. Why? Because you can now earn about 5% on your money market funds (depending on where you keep it). We typically use the Schwab Value Advantage Money Fund® (SWVXX). And as of 3/20/2024, its current yield is 5.18% with an annual expense ratio of 0.340%.

Money market funds are relatively low-risk and liquid. They trade for a dollar value that rarely changes. What changes? The interest rate that the funds pay (which can reset as often as every seven days).

Why move money out of your money market fund?

You invest in a money market fund to help you earn more interest on your safe money. You want to choose what gives you the best rate possible. The rate you get is dependent on duration—the length of time that you’re investing your money.

Currently, looking at the treasury yield curve, you’ll earn more interest by having your money in shorter-term treasuries than you would versus long-term treasuries. Eventually, the curve will reverse and long-term investments will yield more interest. That’s when you’d consider reducing the amount of money out of money market funds.

Until the Fed raised interest rates in 2022, money markets were paying almost nothing. As the Fed raised interest rates, the interest paid increased. What might make money market rates fall?

The primary driver is inflation. The Fed monitors inflation so they can make decisions about what to do with interest rates. Inflation has been high. The Fed doesn’t want to cut rates too quickly because it could trigger more inflation.

What could you buy to replace money market funds? How do you reduce your exposure? Listen to hear some ideas!

Resources Mentioned

• Retirement Readiness Review
• Subscribe to the Retire with Ryan YouTube Channel
• The 5-Step Portfolio Process, Ep #17
• Daily Treasury Yield Curve Rates
• Schwab Value Advantage Money Fund®
• SPDR® Portfolio Aggregate Bond ETF
• SPDR® Portfolio Long Term Treasury ETF

Connect With Morrissey Wealth Management

www.MorrisseyWealthManagement.com/contact

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