Personal Business: Smart Money
WHERE'S THE CHEAPEST PARKING?
For the past few years, low-yielding money-market funds have been a place to
stash cash while you move it in and out of real investments. But with stock and bond markets so unnerving lately and money funds yielding an average of 5.34%, the latter once again offers an investment option in its own right. Investors are taking notice. The week ended Jan. 13 marked a new high of $528 billion in taxable money-fund assets--up from $509 billion on Dec. 31, according to IBC/Donoghue's Money Fund Report.
If you plan to stay in a money fund for a while, though, pay close attention to the expense ratio. Since money funds generally invest in similar, low-risk securities, the fee is a major determinant of differences in yield. Many money funds are loaded with freebies, such as check-writing and switching among funds. But if you don't need such services and can afford a hefty initial investment, you may be better off in a fund that discourages small transactions with nuisance fees and high check minimums and then compensates with lower expenses and fatter yields.
For example, the $50,000 minimum Vanguard Admiral U.S. Treasury Money Market Fund charges only 0.15% in expenses and yields 5.36%. The average government-only money fund yields 5.07%. Fidelity Spartan Money Market Fund, paying 5.52%, has a $20,000 minimum and a 0.44% fee. The average money fund charges 0.57%.
LONG VIEW. True, plenty of money funds boast lower expenses than the high-minimum funds. That's because nearly 60% of all money funds currently waive some or all of their expenses to boost their yields, a practice that became common as yields fell to 3%. But there's always the danger that these fees will be phased back in, causing the yield to fall.
If you are enticed by the yield on a fund that is
not charging a fee, check to see how long the waiver will be in effect. Strong Money Market Fund--the top yielder at 6.23%--guarantees to forgo all fees through June, 1995. Flex-Funds Money Market Fund promises to waive part of the management fee in order to stay in the top 10% of money funds. Vanguard disapproves of fee waivers on the grounds that they mislead investors about yield. Instead, its regular money fund holds expenses to 0.32%. So there are plenty of low-fee goodies even if you don't have $50,000 to invest. By Amey Stone