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Investors Seek 5% Yield in Alternative Assets, Avoiding Bond Market Volatility

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Investors Flock to Money Market Funds for Stable 5% Yields Amid Bond Market Volatility

Investors are increasingly turning to money market funds, attracted by their enticing 5% yields and the stability they offer compared to the volatile bond market. The recent surge in Treasury yields has shaken the bond market, making money market funds an appealing alternative for investors seeking safety and capital preservation. Peter Crane, founder of Crane Data, a firm that tracks money markets, believes that the 5% yield is likely to persist for the foreseeable future. Treasury yields reached a fresh 16-year high of 4.887% after stronger-than-expected jobs data raised concerns about inflation and the Federal Reserve's response. However, yields have since eased from that level.

Money Market Funds: A Safer Haven

Money market funds differ from bonds in terms of risk because they primarily hold short-dated securities. Shelly Antoniewicz, deputy chief economist at the Investment Company Institute, explains that the weighted average maturity (WAM) of retail government money market funds is only 25 days. To assess the volatility, investors can observe the stability of the one-month Treasury bill, which closely aligns with the federal funds rate. These characteristics make money market funds an attractive option for risk-averse investors.

Investing in Money Market Funds

The interest in money market funds gained momentum when the Federal Reserve began raising interest rates last year. This trend continued as $64.13 billion flowed into money market funds, setting a record high of $5.71 trillion in total net assets, according to the Investment Company Institute. The annualized 7-day yield on the Crane 100 list of the largest taxable money funds currently stands at 5.18%. Barry Glassman, president of Glassman Wealth Services, highlights the potential of earning higher yields in money market funds compared to longer-term Treasuries, emphasizing the stability and attractive returns they offer.

Considerations for Investors

When considering investments in money market funds, Glassman advises looking at larger government funds managed by stable and reputable companies. While unfamiliar fund names may raise concerns, it is important to recognize the expertise and track record of the management team. It is also crucial for investors to weigh the shorter durations within money market funds against potentially missing out on locking in longer-term yields with Treasuries. Additionally, investors should stay informed about the Federal Reserve's rate-cutting plans, as they may impact the performance of money market funds in the future. In summary, the allure of stable 5% yields and the lower volatility of money market funds have attracted investors seeking a safe haven amid bond market turbulence. As the Federal Reserve's interest rate decisions and market conditions evolve, investors should carefully evaluate the benefits and trade-offs of money market funds in their investment strategies.

The Impact of Money Market Funds on New Business Formation

The recent trend of investors flocking to money market funds for a stable 5% yield amidst bond market volatility could have significant implications for new businesses. The stability and attractive returns of these funds, as highlighted by Peter Crane of Crane Data and Barry Glassman of Glassman Wealth Services, make them an appealing alternative to the turbulent bond market.

Money Market Funds: A Financial Cushion for New Businesses

The safety and capital preservation offered by money market funds could provide a financial cushion for new businesses. With their short-dated securities and stable returns, these funds could serve as a reliable source of capital for businesses in their early stages. This could be particularly beneficial in uncertain economic times, providing businesses with a safety net and reducing their financial risk.

Investment Trends and Business Decisions

The surge in interest in money market funds, triggered by the Federal Reserve's decision to raise interest rates, has led to a record inflow of capital into these funds. This trend could influence new businesses' financial strategies, encouraging them to consider money market funds as part of their investment portfolios. However, as Glassman advises, businesses should carefully consider their choices, focusing on funds managed by reputable companies and weighing the potential trade-offs.
Future Implications
As the Federal Reserve's policies and market conditions continue to evolve, new businesses should stay informed and adapt their strategies accordingly. The performance of money market funds could be impacted by future rate cuts, which could affect businesses' returns from these investments. In sum, the rising popularity of money market funds could reshape the financial landscape for new businesses, offering them a stable investment option amidst market volatility.
Story First Published at: https://www.cnbc.com/2023/10/06/investors-can-get-a-5percent-yield-in-these-assets-and-skip-the-bond-market-volatility-.html
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