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Fund Spy

Cash Is Not Trash

Don't give up on your money market fund.

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We hold money market funds for a variety of reasons. They can be an emergency backup should we lose our job or have uninsured damage to our house (or to ourselves). They can be a spot to park your money while you wait for a new opportunity to present itself.

They are also a good place to put money that you intend to spend on a big-ticket item like a car or tuition in the next two years. Finally, some investors own them just to have a superlow-risk portion in their portfolio that can reduce the pain of a year like 2008 and provide dry powder to put to work in a sell off.

But today, many money market funds are yielding just 0.01%, and some investors are rushing to short-term-bond funds and ultrashort-bond funds in order to get some income. Many fund companies have been forced to eat some or all of their expense ratios in order to keep yields from going to zero. It's not a fund-company conspiracy--Treasury bills just have incredibly low yields.

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Russel Kinnel does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.