HUNTSVILLE, Ala. (WAFF) – In today’s volatile market environment, financial expert Marshall Clays says many investors are turning to money market mutual funds as a reliable investment option. However, while they can be appealing in times of high-interest rates, Clays says they also come with drawbacks over the longer term.
According to Fidelity, a money market mutual fund is a fund that invests in debt securities characterized by their short maturities and minimal credit risk. Clay says this fund comes with several positives. One pro is its principal preservation and low volatility compared to stocks or bonds. They also have easy access to funds, often with options for same-day or next-day redemption. Clay notes that money market mutual funds also offer competitive yields, currently ranging from 4 to 4.25 percent.
Conversely, Clay says this type of fund has lower returns compared to riskier assets. There’s also the downside of inflation. He says the FED is under pressure to change the rates, but if that doesn’t happen, it could limit your returns.
“So if we’re still looking at inflation between two and three percent, right, and you’re only making two to two and a half percent, you’re actually losing money in real terms,” Clay said. “So that’s the key takeaway here: while these things look relatively attractive now with the yields, when you add in inflation, you add in taxes, they’re not all they’re cracked up to be.”
Clay encourages investors to consider longer-duration bonds, maybe one to three years. He says that it can lock in the higher yields that we’re seeing right now and not be subject to some of the downsides of money market mutual funds.
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