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.

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