Record Inflows Expected in Money Market Funds: Top Yielding Plays
Money market funds are experiencing a surge in popularity among Americans, driven by attractive yields that haven't been seen in years. In 2023, these funds are projected to achieve record inflows, with nearly $1 trillion already flowing into them this year, according to a recent note from Bank of America. The largest funds are offering yields surpassing 5%. Shelly Antoniewicz, deputy chief economist at the Investment Company Institute, explains that money market fund yields have kept pace with the rapid rise in short-term interest rates, reaching their highest levels in over 15 years. As of September 20, assets in these funds amounted to $5.64 trillion, as reported by the ICI.
Retail Investors Driving Inflows
While there was a slight decrease in assets from the previous week due to seasonal outflows related to the third-quarter corporate tax deadline, inflows from retail investors have continued to rise. Over the past year, retail investors in money market funds have grown by 40%, accounting for nearly 40% of the overall money fund market, up from 33% a year ago. Peter Crane, founder of Crane Data, a firm tracking money markets, believes that money market fund inflows will continue to set records. He identifies the 5% yield as the "magic number" that attracts investors. The average yield on his Crane 100 list of the 100 largest taxable money funds is 5.17%, significantly higher than the average annual percentage yield of 0.58% for bank savings accounts, according to Bankrate.com.
Streamlining Accounts for Convenience
To maximize the benefits of money market funds, Crane suggests considering mutual funds at brokerage firms where other accounts are held. While safety and liquidity are assumed attributes, convenience plays a crucial role. The rate of return becomes increasingly important for larger balances and longer investment durations. However, the nature of cash investments is such that individuals may need to access their funds quickly. By consolidating accounts, cash transfers can occur immediately rather than waiting for a day or two, providing greater convenience and flexibility.
In conclusion, money market funds are witnessing remarkable inflows, driven by attractive yields and the growing interest of retail investors. The potential for record-breaking inflows in 2023 indicates the continued appeal of these funds. As investors seek higher returns in a low-interest-rate environment, money market funds offer an appealing alternative to traditional cash options. Streamlining accounts and considering convenience alongside safety and liquidity can enhance the overall experience and accessibility of these funds.
Money Market Funds' Popularity Surge: Implications for New Business Formation
The current surge in popularity of money market funds, driven by attractive yields, presents intriguing implications for new business formation. With projections of record inflows in 2023 and nearly $1 trillion already invested this year, the appeal of these funds is undeniable. The largest of these funds are offering yields surpassing 5%, a rate that has kept pace with the rapid rise in short-term interest rates, reaching their highest levels in over 15 years.
Role of Retail Investors
Retail investors are playing a significant role in driving these inflows. Over the past year, their participation in money market funds has grown by 40%, accounting for nearly 40% of the overall money fund market. This trend is expected to continue, with Peter Crane, founder of Crane Data, predicting that money market fund inflows will continue to set records. The 5% yield is seen as the "magic number" attracting investors, offering a significant advantage over the average annual percentage yield of 0.58% for bank savings accounts.
Opportunities for New Businesses
The rising popularity of money market funds presents opportunities for new businesses in the financial sector. Firms offering services related to these funds could benefit from the increased interest and investment. Additionally, businesses could leverage the trend towards streamlining accounts for convenience. As investors seek to consolidate their investments for easier access and management, businesses offering solutions to facilitate this could find a ready market.
In essence, the remarkable inflows into money market funds, driven by attractive yields and growing retail investor interest, signal a vibrant and dynamic market. New businesses attuned to these trends and ready to provide relevant services could find significant opportunities for growth and success.
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