Friday, September 8, 2023

Government Vs Treasury Money Market Fund

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Money Market Funds: What You Need to Know

Pension Savings: retirement savings

Current Savings: all savings that are not pension savings

Cash, current savings in, checking accounts, money market and savings accounts, money market funds, cash and call accounts at brokerages, certificates of deposits, treasuries, cash n.e.c.

Fixed Income Instruments: current savings in, directly held bonds apart from treasuries, bonds held in non-pension annuities , bonds held in trust and managed accounts, bond funds apart from treasuries, 50% balanced funds

Directly Held Equity: current savings directly held in equity

Indirectly held equity, current savings held in equity through mutual funds, non-pension annuities, and trust or managed accounts, 50% of balanced funds

Cash Value Life Insurance: Current liquidation value of life insurance policies that build up a cash value. These are sometimes called whole life, straight life, or universal life policies. They are different from traditional term policies which instead pay a claim only upon early premature death.

Pension Fixed Income: pension savings in retirement accounts and pension annuities held directly or indirectly in fixed income instruments

Pension equity, pension savings in retirement accounts and pension annuities held directly or indirectly in equity

Investment in Real Estate: residential and non-residential real estate which is not a part of the primary residence and that is not owned by a business

Student Debt: loans for education attainment

Money Market Fund Advantages

Money market funds invest in the short-term debt of the United States government: This means treasury bills, which mature much sooner than treasury bonds. The short-term nature of this investment allows the fund to adjust to rising interest rates. When the fund gets its money back from short-term investments, the money manager can quickly reinvest the money in T-bills that pay higher interest. Your money remains relatively safe because the investment is backed by the U.S. Treasury, and your income goes up as interest rates rise.

Retail And Institutional Prime And Municipal Money Market Funds

Retail prime and retail municipal money market mutual funds have policies and procedures reasonably designed to limit all beneficial owners to “natural persons” . These funds may continue to seek to maintain a stable $1.00 net asset value , but are subject to potential liquidity fees and redemption gates .

Institutional prime and institutional municipal money market mutual funds are funds that do not qualify as retail fundsi.e., they may be held by institutional investors. These funds are subject to potential liquidity fees and redemption gates, and will price and transact at a floating NAV .

Government money market mutual funds, including U.S. Treasury funds, are available to both retail and institutional investors, and are not subject to potential liquidity fees, redemption gates, or a floating NAV.

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Money Market Mutual Funds

The Vanguard Admiral Treasury Money Market Fund is a conservative investment option offered by Vanguard that invests in US Treasury securities. The fund maintains a share price of $1 and the strategic objective is to provide current income to investors. The income received by shareholders depends on the current interest rate environment.

The Vanguard California Tax-Exempt Money Market Fund is designed only for California residents and seeks to provide federal and California State tax-exempt income and preserve shareholders principal investment by maintaining a share price of $1. This fund is considered one of the most conservative investment options offered by Vanguard. Although the fund invests in short-term, high-quality securities, the amount of income that shareholders may receive is largely dependent on the current interest rate environment and the availability of eligible California municipal securities. Investors in a higher tax bracket who have a short-term savings goal and seek a competitive tax-free yield may wish to consider this option.

The Vanguard Federal Money Market Fund and Vanguard New Jersey Tax-Exempt Money Market Fund in US government securities are also conservative Vanguard investment options.

Salih N. Neftci, in, 2008

Vanguard Federal Money Market Fund

What are treasury bills? Definition and meaning

Vanguard launched the Vanguard Federal Money Market Fund in 1981. Total AUM as of May 2021 is $193.8 billion. This fund has the same investment aims of providing capital preservation and current income through investing in high-quality, short-term U.S. government securities.

Vanguard bills this fund as one of the most conservative offerings in this category, making it an ideal choice for conservative seeking risk avoidance and capital preservation.

As of May 2021, the funds top allocation was to U.S. Treasury Bills at 75.4%, followed by U.S. Government Obligations at 23.6% and Repurchase Agreements at 1.0%. The average maturity of the portfolio holdings was 55 days. The expense ratio for the Vanguard Federal Money Market Fund is 0.11% the dividend yield is 0.02%, and the one-year total return is 0.45%.

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Advantages Of Money Market Funds

  • Stability Money market mutual funds are considered to be one of the least volatile types of mutual fund investments
  • Liquidity Its easy to settle your brokerage account trades in other investments, or retrieve funds from a money market mutual fundgenerally assets are available by the next business day
  • Security The funds are required by federal regulations to invest in short-maturity, low-risk investments, making them less prone to market fluctuations than many other types of investments
  • Short duration Because the duration of money market mutual funds is so shortat maximum a few monthsthey are typically subject to less interest rate risk than longer-maturing bond fund investments
  • Diversification Money market mutual funds tend to hold many different securities, with limited exposure outside U.S. Treasury funds to any single issuer
  • Potential tax advantages Some money market funds invest in securities whose interest payments are typically exempt from federal, and in some cases, state income taxes these funds can be a potential source of stable, tax-efficient income

Money Market Fund Disadvantages

You pay for safety. The lower the risk on an investment, the lower your chances of making high returns. Money market funds tend to pay less interest than bonds. Before considering how to get the highest yield possible, the primary purpose of any money market fund is to preserve capital. In practice, this means the yield remains extremely low, just barely above what you would get in a savings account at your bank.

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Money Market Fund Vs Savings Account

If this sounds similar to a high-yield savings account or a money market account, it is. The biggest difference is that yields on money market mutual funds respond much more rapidly to changes in market interest rates. As interest rates rise, the APYs on most money market accounts and savings accounts lag the market significantly while money market fund yields respond immediately.

This can make money market funds a great choice for earning a return on your cash. Thats particularly true when you know you have an upcoming big-ticket purchase and you need quick access to cash.

Lets say youve saved up a down payment for your first home, for example, and youre searching for the perfect property. Putting that money into stock investments would be too risky since you want to buy the house soon and market volatility could eat up some of your investment. But the balance is large enough that you dont want to miss out on earning interest by holding it in your checking account. In that case, a money market fund would offer you the liquidity and stability you want with the potential for a modest return.

Money Market Vs Short

U.S. Gov’t Money Market Fund 2.3% Vanguard, 2.0% Fidelity, July 2019

On a short-term basis, money market funds and short-term bonds are both excellent savings vehicles. Both are liquid, easily accessible, and relatively safe securities. However, these investments can involve fees, may lose value, and might decrease a person’s purchasing power. Although money market funds and short-term bonds have many similarities, they also differ in several ways.

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What Is A Money Market Account

Money market accounts operate in a similar manner to a savings account, and quite a few come with tools you would associate with a checking account such as a debit card and check-writing abilities. You deposit money, and its always easily accessible.

However, there are transaction limits. You are usually restricted to six withdrawals per billing statement period. If you exceed that limit, you may pay a fee, though in the pandemic, many banks have suspended those fees. As the world slowly returns to normal, be sure to keep an eye on when that fee structure also returns to avoid any unnecessary charges.

Next Steps To Consider

Before investing, consider the funds’ investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

Past performance is no guarantee of future results. Current and future portfolio holdings are subject to risk.

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Spaxx Vs Fzfxx Net Asset Value

In the world of investing, net asset or net asset value is one of the indicators of a good investment. Generally, it is the value of a funds assets minus the value of its liabilities.

However, most often, the term is used in connection to mutual funds or ETFs. It is a measure of the value of the assets/holdings in the fund.

In a mutual fund or ETF, the value of assets will be the value of the securities in the portfolio. On the other hand, the value of liabilities will be the value of all of the funds liabilities and expenses.

This includes operational fees, management expenses, audit fees, and salaries.

Investors consider the net asset of a fund because it shows the difference between what the entity owns and what it owes.

This helps determine the exact value of the fund.

Apositive NAV may be an indication of good financial health.

If the fund has a negative NAV, the possibility that it will soon face serious financial difficulties is high.

SPAXX Net Asset Value is $214.74B

FZFXX Net Asset Value is $30.71B

These figures show that both funds are at an all-time high with high net asset values.

However, SPAXX is beating FZFRXX with $184.03B more in net assets.

The Net Asset Value Standard

Money Market Account: Competitive vs Noncompetitive Bids ...

All the features of a standard mutual fund apply to a money market fund, with one key difference. A money market fund aims to maintain a net asset value of $1 per share. Any excess earnings that get generated through interest on the portfolio holdings are distributed to the investors in the form of dividend payments. Investors can purchase or redeem shares of money market funds through investment fund companies, brokerage firms, and banks.

One of the primary reasons for the popularity of money market funds is their maintenance of the $1 NAV. This requirement forces the fund managers to make regular payments to investors, providing a regular flow of income for them. It also allows easy calculations and tracking of the net gains the fund generates.

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Government And Treasury Money Funds

  • 7-day yield as of 03/04/20224
  • Minimum Initial Investment
  • Schwab Government Money Fund Investor Shares
  • 7-day yield as of 03/04/20224 0.01%
  • Schwab Government Money Fund Ultra Shares
  • 7-day yield as of 03/04/20224 0.01%
  • Schwab Treasury Obligations Money Fund Investor Shares
  • 7-day yield as of 03/04/20224 0.01%
  • Schwab Treasury Obligations Money Fund Ultra Shares
  • 7-day yield as of 03/04/20224 0.01%
  • Schwab U.S. Treasury Money Fund Investor Shares
  • 7-day yield as of 03/04/20224 0.01%
  • Schwab U.S. Treasury Money Fund Ultra Shares
  • 7-day yield as of 03/04/20224 0.01%

Are Money Market Funds Safe

Money market funds are investments, and all investments carry a certain degree of risk. Money market funds aim to maintain a price of $1 per share, and even in the most tumultuous of market environments such as the 2008 financial crisis and the 2020 pandemic-induced sell-off nearly all of them did. However, there is the occasional fund that breaks the buck and returns investors 95 cents or 99 cents for each dollar invested. Large brokerages and mutual fund companies move heaven and earth to preserve the $1 net asset value, as there is massive risk to their reputations if they dont. Keep in mind, though: There is no guarantee of that $1 mark.

Despite the remote possibility of any loss, it is also important to note that money market funds represent some of the most conservative investments available. After the financial crisis in 2007 and 2008, the government implemented new rules to limit the risks of money market funds and make those remote risks even more remote. With a money market fund, you can feel confident you wont deal with any sudden volatility and lose a big chunk of your money.

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Investment Bank Participation In Financial Markets

Investment banks have active participation in the money, bond, mortgage stock, and derivatives markets. Many investment banks through money market mutual funds invest in money market securities. Investment banks also underwrite commercial papers. Investment banks actively participate in the bond market through underwriting bond issues in the primary market and provide advisory services for clients for bond purchases and sales. Investment banks also play a role in the bond market by facilitating the raising of funds for corporate restructuring activities such as mergers and acquisitions, leveraged buyouts, and other activities. Investment or securities firms also play a role in the mortgage market by underwriting securities that are backed by mortgages for various financial institutions. In stock markets, the investment banks play the major roles of underwriters in the primary market, advisors and brokers in the secondary market. In derivatives markets of futures, options and swaps, investment banks act as financial intermediaries or brokers.

Dr.Jeffrey R. Bohn, in, 2011

In , 2019

The State Of Money Market Yields Following Fed Action

The Gabelli U.S. Treasury Money Market Fund (GUSTO) – Portfolio Manager Judith Raneri (2.1.2019)

Wells Fargo Investment Institute – July 26, 2021

Key takeaways

  • The Federal Reserves actions taken in June 2021 served toslightly increase the yield of certain securities held in money marketfunds. Money market fund yields remain positive, and the slight increase in yield has been supportive of fund net asset values, whichhave generally remained slightly above $1.
  • Money market yields have declined notably since the Fed reduced thefederal funds rate in early 2020. Current expectations are that the Fedwill keep rates at low levels with the first rate hike coming in early 2023.

What it may mean for investors

  • We believe that the economy appears solid, and that this is not the end of the cycle or the bull market. We believe that long-term investors should focus on implementing their investment plans, which should include asset allocation, diversification, and rebalancing.
  • With the Feds zero interest rate policy still in place, fund yields are verylow and we expect them to stay relatively low over the next few years.For investors looking to invest new assets in the money market space,we favor Treasury and government money funds.

In early 2020, the flight to quality during the onset of the coronavirus pandemic had investors keenly focused on liquidity and potential risks in money market funds. The Feds actions taken during that turbulent time in the markets served to enhance liquidity in the broader markets and in money markets more specifically.

Risk Considerations

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Risks Of Money Market Funds

  • Unlike typical bank certificates of deposit or savings accounts, money market mutual funds are not insured by the Federal Deposit Insurance Corporation although money market mutual funds invest in high-quality securities and seek to preserve the value of your investment, there is the risk that you could lose money, and there is no guarantee that you will receive $1 per share when you redeem your shares
  • Inflation risk Because of the safety and short-term nature of the underlying investments, money market mutual fund returns tend to be lower than those of more volatile investments such as typical stock and bond mutual funds, creating the risk that the rate of return may not keep pace with inflation

Prime money market funds:

  • Foreign exposure Entities located in foreign countries can be affected by adverse political, regulatory, market, or economic developments in those countries
  • Financial services exposure Changes in government regulations, interest rates, and economic downturns can have a significant negative effect on issuers in the financial services sector, including the price of their securities or their ability to meet their payment obligations

All prime and municipal money market funds:

  • Liquidity risk The fund may impose a fee upon the sale of your shares, or may temporarily suspend your ability to sell shares, if the funds liquidity falls below required minimums because of market conditions or other factors

Why Are Money Market Rates So Low

Compared to other fixed-income products, money market rates are the lowest because they are the safest. If you instead choose fixed-income options with higher interest rates, then you are taking on additional risk to your principal investment. In a broader sense, interest rate environments reflect economic conditions. Many factors impact interest rates, but as a general rule of thumb, low-rate environments may reflect struggling and deflationary economies, while high-rate environments may reflect booming economies with high inflation.

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Investors Who Might Consider Money Market Funds

Money market funds may be appropriate for customers who:

  • Have an investment goal with a short time horizon
  • Have a low tolerance for volatility, or are looking to diversify with a more conservative investment
  • Need the investment to be extremely liquid

While the returns on money market funds are generally not as high as those of other types of fixed income funds, such as bond funds, they do seek to provide stability, and can therefore play an important role in your portfolio. Investors can use money market funds in a few ways:

  • To offset the typically greater volatility of bond and equity investments
  • As short-duration investments for assets that may be needed in the near term
  • As a holding place for assets while waiting for other investment opportunities to arise

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