Independent Adviser: Cash Climbs
The March issue of the Independent Advisor for Vanguard Investors' features a brief entitled, "Cash Climbs." They write, "You won't get rich on money market yields, but at least they're rising from the near-zero bound of 0.01% that we've all been frustrated by for so long. At February's end, the seven-day yield on Treasury Money Market stood at a relatively mouth-watering 0.09% while its taxable siblings were still posting 0.01% yields. Vanguard's municipal money funds yielded between 0.02% and 0.07%." The newsletter tells us, "Obviously, rising money market yields are a direct result of traders' expectations that the Federal Reserve will be hiking short-term interest rates in the very near future.... [Y]ields began rising shortly before or shortly after the Fed's first rate hike following the Great Financial Crisis in December 2015. Vanguard's money markets team's investments in floating rate securities and shortened maturities generated higher yields. The yield advantages led Vanguard to end its fee waivers, totaling some $123 million, sometime between Aug. 2015 and Feb. 2016." It adds, "Right now, Vanguard is still waiving expenses on its money funds. Based on the latest reports, Vanguard has again waived about $124 million in money market fees, though on a much higher base of assets. Whether the waivers continue once the Fed begins raising interest rates remains to be seen, but while single-digit yields are nothing to stake your retirement on, the income drought appears to be ending. As always, my advice is to use money market funds as strategic vehicles for your spending. Don't keep long-term money here as inflation will quickly reduce your spending power. However, money funds are great tools for immediate spending needs -- you can wire funds from them and the one thing you can be assured of is that every dollar you put into one will be a dollar you can take out. And that's worth some peace of mind."
