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'Stupid Investment Of The Week' Money Market Funds
Brilliant Deduction Watson - Well, err ... Isn't Jaffee's observation that virtually all forms of cash yield essentially zero pretty old grit by now? Add to this that money market funds don't carry FDIC insurance like banks do (who didn't know that?) and guess we got a story. A better story, maybe, is that this tough medicine dished out by the Federal Reserve appears to be working - its end goal being to make all forms of cash so unappealing folks are forced into riskier assets. Let's see... first pile into long duration bonds and drive interest rates down even lower (nice bubble there). Next, load up on high yield - big run there too. Follow up with emerging market bonds. And now, of course, stocks - the dividend paying kind thank you. (Gold's hot - but viewed as an alternative form of "currency" may not be exactly what the Fed's fishing for.) When the merry-go-round eventually stops, all that displaced cash - still looking for more permanent residency - disembarks and moves into housing - or so they hope.
Back to those nasty money market funds. I'd be first to say that if just sitting on an emergency reserve - that being your only consideration - an insured bank account is better. However, I wouldn't run out and sell a long faithful money fund tomorrow if it's been meeting your needs. As the article notes, they're ideal for moving in and out of investments at a brokerage or fund house. One of ours takes an automatic investment from our bank monthly - a great assist to budgeting we find. Many offer free check writing. In the case of T. Rowe Price, money fund investments count towards the minimum necessary to waive IRA fees on other investments - a substantial savings for some. Money market mutual funds have been around for over 40 years. They are regulated by the SEC - but not insured. As far as I can tell, only three have ever "broken the buck" over that period - the worst documented loss being 6 cents on the dollar. (compare that to potential losses from stock or junk bond funds)
For the sake of another aspect regarding MM accounts within fund families; and which I did not find mentioned in the story, is that one may place an average expense ratio of .50%.
Obviously, the past few years will find MM monies going backwards in value just from ER's; aside from lost of purchasing power, as I noted this area is last week's "Fund Boat".
If one has a need to view a long list of MM's, click the link. NOTE: for pc users, with the list in view........do the "control" key and "f" key together to open the search function........type in the name you are looking for to hop through the list with speed.
to your last point, hank... many more than 3 "broke the buck" in 2008, but those owned by banks or any other deep pocketed (and not so deep pocketed) parents, received capital infusions to keep their NAV @$1.00.
Reply to @hank: "Add to this that money market funds don't carry FDIC insurance like banks do (who didn't know that?)'"
Things are not as simple as they may appear. Certainly that's true now, but in 2009 MMFs may have been guaranteed by the Treasury (and for those who are so concerned with safety that they question the safety of the FDIC, the Treasury backing may have provided a theoretically higher level of security). And the amount guaranteed was only what you had in the account on 9/19/2008. But it does show that MMFs are not always bereft of federal insurance.
(Had a conversation with someone at work a couple of days ago, who was reading some curiously worded doc and he opined: who uses "bereft"; glad it fits in here
I wonder if people notice that MMF rates (at least some of them) have been rising? FDRXX and FSLXX are yielding 5 to 7 times what they were paying just recently (now 0.05% and 0.14% respectively; the latter is double what Fidelity pays in its FDIC-insured account. Okay, it's two times nothing, but still its a trend I can't explain.
I can't find the story right now. But recall from a few days ago that the MM's monies that had been parked in Europe (and was withdrawn throughout 2011) has found its way to Australia, Indonesia and other Asian countries. I don't know that this has any affect on MM rates, but is of note.
Reply to @catch22: There could be some greedy #*&!* taking that half point ER from their investors. The vast majority I'll venture are eating the loss rather than pass on the ER and providing investors a negative return. We find that the case at Price, Oppenheimer and TIAA-CREF where we have such accounts. A couple provisos however: (1) the fund might be charging an annual service fee on the account. So, pays to check with them just as you would inquire about fees on a bank account. (2) Even a "0" return on investment is in reality a negative return if fails to keep pace with CPI or whatever inflation measure you choose ... But that's a whole new ball game ... (-:
Just a quick reference I picked at random. This may not be representative or may be a bad choice; as it happens to be a MM inside of an insurance company mutual fund group. But, I am sure there is a pile of money parked in these types of funds in this country. The company is Nationwide.
The listed E.R. = .59%
Hopefully the list below will be in alignment for viewing.
NW NVIT MNY MKT I......YTD, 1 year, 3 year, 5 year, 10 year, since inception in 1981
--- -0.11% -1.42% -1.41% -0.08% -.05% +3.53%
--- "index":3 Mos. T-Bill 0.00 0.08 0.08 0.12 1.36 1.85 ("index" here is apparently what is used as a reference point by the company)
Sorry... not getting the drift Catch. Followed your INDEX link and turns out to be a growth & income fund with 80% in stocks. Is there a reason you don't identify by name or link the money market fund you refer to as inside of some insurance company? Of course there are many ways such an arrangement could be structured. I can only guess that perhaps it's part of an annuity offered by that insurer.
Opps......Falcon's magic program picked up the capitalized word "index" for a link. That was part of the copy/paste for the MM fund. I have adjusted this in the original post. Apparently Nationwide is using the 3 month T-bill as a reference point related to this MM fund. Also included is that the MM is for Nationwide....the insurance/investment company.
Property fund with lotsa pretty real estate in Greece and Cyprus.
However, at less than the cost of a newspaper per share, I couldn't resist buying a little bit as a flyer. Who knows, it might not turn out so stupid over the long term.
Reply to @catch22: The figures you are quoting are not exactly for the MMF, but for the returns of an investment option within a variable annuity. That option is a segregated account of the annuity that invests 100% of its assets in Nationwide Variable Insurance Trust (NVIT) Money Market Fund, class I. (Making "Nationwide NVIT" somewhat redundant, but I digress.)
The returns you are seeing are the returns of the annuity portfolio, that includes the wrapper charges of the annuity. The underlying MMF could not have performed that badly, because the latest prospectus for the MMF (May 1, 2011) says that the worst quarter between 2001 and 2010 returned 0.00%. So it impossible for the three year return (that adds in years 2009 and 2010) to be more negative than the return for 2011. Thus, what you are seeing is not the unadulterated returns of the MMF, but rather that of the MMF within the annuity wrapper.
Here's the page for the NVIT fund docs. Compare them with the docs you are looking at. I believe you'll see a difference.
Nah, I wouldn't worry about it. I suspect that special tourist rate arrangements will come into place, especially for the German citizens. This should stimulate economies in these areas. I don't really recall similar numbers during the height of the market melt; but do recall seeing some tickers roll at the bottom of the old tv screen for the likes of AIG and Ford, and thinking the share price is about the same as looking at the $1 menu at McD's. One never knows. Heck, I wouldn't mind being parked for awhile in some areas of Greece. My dear wife traveled around the country for a few weeks way back in the '70's. If the markets are kind for the next few years and we find our portfolio parked properly, perhaps a revisit may be scheduled. 'Course the main problem for me, as to global travel; is where to either revisit or visit anew. Too many places on the list.
Yes. I revisited the "vit" naming to discover the annuity. Thank you for your efforts with this.
It remains a sad dispostion for this and other MM's; where we must presume a very large sum of monies are parked.
Of another note, at least for some in retirement accts; are those with access to "stable value" parking places. My recall as to these are a synthetic/psuedo bond fund, at least to the build by the vendor or investment house presenting the "sv" for use inside of some retirement accts (401k and related).
Reply to @catch22: I'm definitely not worried. The book value is (at last report and if entirely accurate) over $2, the share price is slightly above a quarter. It either goes under, or value is unlocked somehow. Just an extremely distressed lotto ticket holding, and I'm willing to wait a couple of years.
Reply to @catch22: Thanks Catch. Suspected that (-: - Happens to me all the time too. Linked the fund I believe you are referencing. Provider is identified as Nationwide Mutual Insurance Company (small print near bottom). However, this appears to be a different type of animal - as it claims to carry FDIC insurance.
Tried to count total number of money market funds in your earlier link. However, list seems to drop off after "H" (counted about 950 to that point). Surely, with so many there has to be a few charging the full ER and, in effect, removing cash from depositor accounts. But, I'd think that very rare. What I've seen is that, by-and-large, the larger houses are waiving fees as necessary to maintain a stable NAV. They don't like it, but prefer that to alienating so many folk. Also, some are shutting down their money market funds or restricting access by investors rather than to continue eating the losses. FWIW
Hank, the link is to a money market account. That's a bank account. Way back in time, savings accounts gave pretty fixed rates of interest (Regulation Q, I believe), and banks came up with the name "money market deposit account" to call the new, variable rate accounts they were allowed to have starting in 1982 (link is to St. Louis Fed article on MMDAs, Super-NOWs, and Monetary Policy, 1983).
The Fed points out in its opening paragraph that these were intended to be competitive with, and equivalent to, MMFs. But as bank accounts, they carry FDIC insurance. They are also restricted to six transfers to third parties (up to three of which may be by check), in contrast to the unlimited checkwriting of MMFs (though they typically have a minimum amount that may be withdrawn by check).
As you said, a different animal.
Lots of Treasury MMFs were closed years ago, even (or especially?) by the majors, because Treasury yields were so low that they didn't want more money coming into them.
Regarding MMFs within annuities, here's a recent (Nov) USA Today/John Waggoner article entitled "Money fund yields in variable annuities often less than zero.
would you folks consider buying HY bonds & ETFs/US T, Munis, would these vehicles be better [except that all hell break loose if these companies belly up].... I believe ATT or WellsFargo/ BOA had available bonds that yield > 5% recently [all rated A- or higher]
Comments
Back to those nasty money market funds. I'd be first to say that if just sitting on an emergency reserve - that being your only consideration - an insured bank account is better. However, I wouldn't run out and sell a long faithful money fund tomorrow if it's been meeting your needs. As the article notes, they're ideal for moving in and out of investments at a brokerage or fund house. One of ours takes an automatic investment from our bank monthly - a great assist to budgeting we find. Many offer free check writing. In the case of T. Rowe Price, money fund investments count towards the minimum necessary to waive IRA fees on other investments - a substantial savings for some. Money market mutual funds have been around for over 40 years. They are regulated by the SEC - but not insured. As far as I can tell, only three have ever "broken the buck" over that period - the worst documented loss being 6 cents on the dollar. (compare that to potential losses from stock or junk bond funds)
http://en.wikipedia.org/wiki/Money_market_fund
Obviously, the past few years will find MM monies going backwards in value just from ER's; aside from lost of purchasing power, as I noted this area is last week's "Fund Boat".
If one has a need to view a long list of MM's, click the link.
NOTE: for pc users, with the list in view........do the "control" key and "f" key together to open the search function........type in the name you are looking for to hop through the list with speed.
http://www.investorpoint.com/exchange/NMF-Mutual Funds/money market fund/
"Add to this that money market funds don't carry FDIC insurance like banks do (who didn't know that?)'"
Things are not as simple as they may appear. Certainly that's true now, but in 2009 MMFs may have been guaranteed by the Treasury (and for those who are so concerned with safety that they question the safety of the FDIC, the Treasury backing may have provided a theoretically higher level of security). And the amount guaranteed was only what you had in the account on 9/19/2008. But it does show that MMFs are not always bereft of federal insurance.
(Had a conversation with someone at work a couple of days ago, who was reading some curiously worded doc and he opined: who uses "bereft"; glad it fits in here
http://www.finra.org/investors/protectyourself/investoralerts/mutualfunds/p117136
I wonder if people notice that MMF rates (at least some of them) have been rising? FDRXX and FSLXX are yielding 5 to 7 times what they were paying just recently (now 0.05% and 0.14% respectively; the latter is double what Fidelity pays in its FDIC-insured account. Okay, it's two times nothing, but still its a trend I can't explain.
I can't find the story right now. But recall from a few days ago that the MM's monies that had been parked in Europe (and was withdrawn throughout 2011) has found its way to Australia, Indonesia and other Asian countries. I don't know that this has any affect on MM rates, but is of note.
Regards,
Catch
Just a quick reference I picked at random. This may not be representative or may be a bad choice; as it happens to be a MM inside of an insurance company mutual fund group. But, I am sure there is a pile of money parked in these types of funds in this country.
The company is Nationwide.
The listed E.R. = .59%
Hopefully the list below will be in alignment for viewing.
NW NVIT MNY MKT I......YTD, 1 year, 3 year, 5 year, 10 year, since inception in 1981
--- -0.11% -1.42% -1.41% -0.08% -.05% +3.53%
--- "index":3 Mos. T-Bill 0.00 0.08 0.08 0.12 1.36 1.85 ("index" here is apparently what is used as a reference point by the company)
Opps......Falcon's magic program picked up the capitalized word "index" for a link. That was part of the copy/paste for the MM fund. I have adjusted this in the original post. Apparently Nationwide is using the 3 month T-bill as a reference point related to this MM fund.
Also included is that the MM is for Nationwide....the insurance/investment company.
Thank you for pointing to the confusion factor.
Catch
Property fund with lotsa pretty real estate in Greece and Cyprus.
However, at less than the cost of a newspaper per share, I couldn't resist buying a little bit as a flyer. Who knows, it might not turn out so stupid over the long term.
The returns you are seeing are the returns of the annuity portfolio, that includes the wrapper charges of the annuity. The underlying MMF could not have performed that badly, because the latest prospectus for the MMF (May 1, 2011) says that the worst quarter between 2001 and 2010 returned 0.00%. So it impossible for the three year return (that adds in years 2009 and 2010) to be more negative than the return for 2011. Thus, what you are seeing is not the unadulterated returns of the MMF, but rather that of the MMF within the annuity wrapper.
Here's the page for the NVIT fund docs. Compare them with the docs you are looking at. I believe you'll see a difference.
Nah, I wouldn't worry about it. I suspect that special tourist rate arrangements will come into place, especially for the German citizens. This should stimulate economies in these areas.
I don't really recall similar numbers during the height of the market melt; but do recall seeing some tickers roll at the bottom of the old tv screen for the likes of AIG and Ford, and thinking the share price is about the same as looking at the $1 menu at McD's.
One never knows.
Heck, I wouldn't mind being parked for awhile in some areas of Greece. My dear wife traveled around the country for a few weeks way back in the '70's.
If the markets are kind for the next few years and we find our portfolio parked properly, perhaps a revisit may be scheduled.
'Course the main problem for me, as to global travel; is where to either revisit or visit anew. Too many places on the list.
Catch
Yes. I revisited the "vit" naming to discover the annuity. Thank you for your efforts with this.
It remains a sad dispostion for this and other MM's; where we must presume a very large sum of monies are parked.
Of another note, at least for some in retirement accts; are those with access to "stable value" parking places. My recall as to these are a synthetic/psuedo bond fund, at least to the build by the vendor or investment house presenting the "sv" for use inside of some retirement accts (401k and related).
Take care,
Catch
Tried to count total number of money market funds in your earlier link. However, list seems to drop off after "H" (counted about 950 to that point). Surely, with so many there has to be a few charging the full ER and, in effect, removing cash from depositor accounts. But, I'd think that very rare. What I've seen is that, by-and-large, the larger houses are waiving fees as necessary to maintain a stable NAV. They don't like it, but prefer that to alienating so many folk. Also, some are shutting down their money market funds or restricting access by investors rather than to continue eating the losses. FWIW
http://www.nationwide.com/high-yield-money-market-account.jsp#tabs
The Fed points out in its opening paragraph that these were intended to be competitive with, and equivalent to, MMFs. But as bank accounts, they carry FDIC insurance. They are also restricted to six transfers to third parties (up to three of which may be by check), in contrast to the unlimited checkwriting of MMFs (though they typically have a minimum amount that may be withdrawn by check).
As you said, a different animal.
Lots of Treasury MMFs were closed years ago, even (or especially?) by the majors, because Treasury yields were so low that they didn't want more money coming into them.
Regarding MMFs within annuities, here's a recent (Nov) USA Today/John Waggoner article entitled "Money fund yields in variable annuities often less than zero.
http://seattletimes.nwsource.com/html/businesstechnology/2017345551_fundnews29.html
would you folks consider buying HY bonds & ETFs/US T, Munis, would these vehicles be better [except that all hell break loose if these companies belly up].... I believe ATT or WellsFargo/ BOA had available bonds that yield > 5% recently [all rated A- or higher]
Are you asking about individual bonds or etf/mutual funds in these sector?
Your note indicates some from both camps.