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Be Careful with Money Market Alternatives

2014interestRates-277x300Investors ought to be careful and shrewd in their use ofmoney market alternatives. With short-term rates nearzero, many people have looked past traditional cashvehicles such as savings accounts and money market funds,to a spectrum of short-term vehicles, from relatively safeoptions like short-term bond funds to riskier, leveraged structures.

Unlike money market funds, these alternatives may losemoney when short-term interest rates rise. Until recently,rising short-term rates have seemed unlikely. But the 2-yeartreasury yield rose following the Federal Reserves recentmeeting, in anticipation of eventual rate hikes (chart).Since then, Fed Chairman Janet Yellen has walked backher comments regarding higher rates. Even so, manymoney market alternatives lost value in March. Indeed,the potential losses may be greater than the potential gainsfor many of these vehicles.

While earning next to nothing on money marketinstruments is undesirable, it is better than losing money.If you are reserving money for near-term spending needs,traditional cash equivalents may be your best option.

DISCLAIMER: Past performance does not predict future results. This report is based on data obtained from sources we believe to be reliable. Hefren-Tillotson does not, nor any other party, guarantee the accuracy or completeness of this report or make any warranties regarding results obtained from its usage. All opinions and estimates included in this report constitute the firms judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation to buy or sell the securities herein mentioned.

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