Money Market Fund (MMF) Shareholders Caught Between a Rock and a Hard Place!
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View from the Observation Deck

  1. Investors and institutions can utilize money market funds (MMF) for such purposes as savings vehicles, short-term parking places for capital, a substitute for bank checking accounts, and safe havens from risk in the markets.
  2. Since the financial crisis of 2008, money market funds have struggled to pay any interest at all to shareholders due to the Federal Reserve's easy monetary policy (See 3-Mo. T-Bill in chart as proxy for MMF rates).
  3. The Fed has stated on more than one occasion that it is prepared to keep short-term lending rates at current levels through 2014, if necessary. The federal funds target rate has been at 0-0.25% since 12/08.
  4. Total assets invested in MMFs fell by $1.25 trillion from $3.83 trillion at the close of 2008 to $2.58 trillion in 3/12 – a 33% decline. (Investment Company Institute)
  5. The average taxable MMF yielded just 0.03% on 5/4/12, according to Inflation, as measured by the Consumer Price Index (Headline Rate), stood at 2.70% in 3/12.
  6. With MMF rates expected to stay low for the foreseeable future, in our opinion, investors have an important question to ponder: Should I stay or should I go?
Posted on Tuesday, May 8, 2012 @ 3:08 PM

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.