This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Money-Market Funds Face an Uncertain Future

The exodus began during the financial crisis when investors feared losses. Since then, shareholders have continued leaving money-market funds in search of higher yields.

Yields on money funds remain minuscule. According to Crane Data, the average yield is 0.06%. That skimpy payout is not likely to rise anytime soon because the Federal Reserve is committed to keeping short-term rates low at least until 2014.

Even with their tiny yields, money-market funds can still serve an important function for investors who want a convenient parking place for cash. But for safety, stick with funds offered by companies with deep pockets, such as Fidelity Investments or Vanguard Group. If those money-market funds run into trouble, you can bet that the parent companies will bail out shareholders rather than suffer negative publicity.

To boost the returns of your portfolio, keep as little as possible in money markets. If you are willing to tie up funds for a year, you can get yields of 1% on bank certificates of deposit, which are insured by the FDIC.

To do better than that, you will have to take on risk.

A sound option is to shift some money to ultrashort bond funds. While money-market funds must have average weighted maturities of 60 days or less, the ultrashort funds focus on securities with maturities of one or two years.

During the financial crisis, many of the ultrashort funds were slammed when mortgage securities crashed. But these days funds that focus on high-quality investments offer plenty of safety.

A sound choice is William Blair Low Duration (WBLNX), which has a current yield of 1.28%. The fund keeps most of its assets in government-backed securities with AAA ratings. The fund has a duration of about one year. So if interest rates rise by one percentage point, the fund could lose 1%.

Stan Luxenberg is a freelance writer specializing in mutual funds and investing. He was executive editor of Individual Investor magazine.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $111.31 0.00%
FB $92.80 0.00%
GOOG $645.44 0.00%
TSLA $241.46 0.00%
YHOO $30.96 0.00%


Chart of I:DJI
DOW 16,790.19 +13.76 0.08%
S&P 500 1,979.92 -7.13 -0.36%
NASDAQ 4,748.3610 -32.9030 -0.69%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs