Timing on money-market funds

You have mentioned no-load market mutual funds numerous times in "Moneywise." In Money for January 1980 a short comment indicated that switching out of MM funds into bonds would be appropriate. What is your comment on this? Mrs. R. M.

The strategy of switching out of high- yield money-market funds into discounted bonds or utility income stocks is one I have recommended repeatedly in these columns.

The reasoning runs thus: Money-market funds hold very short-term instruments with average maturities ranging from 16 to 50 days typically. When shortterm interest rates decline, as they have done recently, yields from the MM funds can be expected to follow suit. However, if you buy fixed-payment bonds at deeply discounted prices, not only can you continue to earn relatively high interest (but not as high as with money-market funds), but if the bond price increases, as interest rates decline, you may sell the bond for a long-term capital gain after one year. Investing in the interest cycle offers one low- risk opportunity to beat inflation.

About these ads
Sponsored Content by LockerDome

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.

Loading...

Loading...

Loading...

Save for later

Save
Cancel

Saved ( of items)

This item has been saved to read later from any device.
Access saved items through your user name at the top of the page.

View Saved Items

OK

Failed to save

You reached the limit of 20 saved items.
Please visit following link to manage you saved items.

View Saved Items

OK

Failed to save

You have already saved this item.

View Saved Items

OK