Welcome to Extreme Investor Network, where we provide you with unique insights and valuable information to help you make the most out of your investments. Today, we are diving into the current state of money market fund yields and exploring alternative options for investors looking to generate interest income in a declining rate environment.
As the Federal Reserve continues its rate-cutting cycle, money market fund yields are starting to pay less. Total money market fund assets have grown to $6.47 trillion, but the income generated from these assets has decreased. The Crane 100 Money Fund Index shows an annualized seven-day yield of 4.69% as of Oct. 14, down from over 5.1% in late July. With yields expected to continue sliding, investors may need to look for alternatives to idle cash in order to generate interest income.
One option to consider is short and ultra-short duration bond funds and ETFs. Duration is a measure of a bond’s price sensitivity to interest rate fluctuations, with longer maturities generally having greater duration. Financial advisors have been recommending adding exposure to duration, particularly in the “intermediate” category of about six years, as the Fed lowers rates. Short duration bonds may be suitable for investors who will need proceeds in the next year or so, as they offer stability and a little more yield compared to cash.
Ultra-short bond funds with one to three years of duration, like Vanguard’s Ultra-Short Bond ETF (VUSB) and AllianceBernstein’s Ultra Short Income (YEAR), may be a good option for investors looking for higher yields while preserving capital. Municipal bond funds can also be considered for tax-conscious investors, as they offer tax-free income compared to corporate bonds.
For investors who prefer less risk, certificates of deposit, high-yield savings accounts, and Treasury bills are safe alternatives to consider. These options provide a secure way to invest cash that may be needed in the near future, with the added benefit of federal insurance on bank deposits and the backing of the U.S. government on Treasury bills.
At Extreme Investor Network, we believe in providing you with the knowledge and tools to make informed investment decisions. Stay ahead of the curve by exploring alternative options to cash and maximizing your interest income in a changing rate environment. Visit our website for more expert insights and strategies to help you achieve your investment goals.