Considering how fast they have grown in the last few years, the money-market mutual funds were bound to be noticed outside the arcane financial circles in which they were born.Lately, a lot of "ordinary" people, whose idea of saving is faithfully making deposits in passbook accounts at local banks, have begun asking, "What is a money fund? Will I lose my shirt? How can I get in one?"
This book is for them.
The money markets are the places banks, governments, and corporations borrow the cash they need to pay bills quickly, meet short-term debts, or raise money in a hurry for particular needs. When these borrowers need money, they sell certificates or notes to people and institutions -- sometimes to each other -- at prevailing market interest rates.
In recent years, a large number of these debt obligations have been bought by the money-market funds, which have pooled some $75 billion in the assets of more than 4 million shareholders to buy the notes, paying back to their customes the interest they earn. Lately, the payback has been around 15 percent, or some three times the passbook rates. Three years ago, the funds had only about $5 billion in assets.
William E. Donoghue has quickly earned a reputation as the "guru" of the money-fund industry. He has done on by arming himself with an arsenal of information on a variety of investments, particularly the money markets. But the reputation he prefers is that of champion to the small saver, the person who is trying to build a nest egg but finds that inflation keeps putting cracks in the shell.
To this end, Mr. Donoghue's firm, P&S Publications -- which all the world is searching for gold, the thing to be doing is selling picks and shovels" -- publishes a money-fund newsletter, a directory of money funds, a weekly listing of fund assets and yields that is pubslihed in the business sections of several newspapers, and a guide for portfolio managers.
But the book is for Everyman, or Everywoman. As he says in the preface, "I wrote this book for my mother, Mrs. Norman E. Donoghue, who, like many senior citizens, has saved all her life to prepare for her golden years -- only to find that her savings have been ravaged by inflation"m (italics his).
Written in the breezy, sometimes flippant style Mr. Donoghue often uses on the financial speaker circuit, the book is an easy cover-to- cover read.It will probably prove more useful afterward, however, as a reference to answer specific questions about how the money markets work, what the funds invest in, how to pick a fund, and how to use it to best advantage.
With all the books jamming the market promising people they can get rich on real estate, gold, the stock market, commodities, or any number of other investments, Mr. Donoghue, to his credit, does not promise people they will get rich reading his book. He does say that readers can keep their savings ahead of inflation, so that if money is set aside on a regular basis, the saver can be fairly sure its buying power will be the same when it is withdrawn as it was when it was deposited.
While most savers are probably the "put it in and let it grow" variety, and Mr. Donoghue has advice for them, he seems to have more fun writing for the "active" saver, the person who likes to diversify among a variety of investments , who likes to move money around as personal and outside financial conditions change, who, in short, likes to "play" with his money.
Mr. Donoghue shows how to find "hidden" assets that could be put into a money fund, how to forecast interest rates and respond to them, how to switch money from one kind of fund to another, how to use the funds' checking privileges, even how to use a bank to make some money.
Although he advocates a few other investments for a diversified strategy, including buying Treasury bills yourself and purchasing some hard assets such as gold or silver, the book is essentially a 189-page advertisement for the money funds and the people who manage them, whose continuation and growth are important to Mr. Donoghue's continued financial growth.
He is supremely confident in the ability of money markets to keep investors ahead of inflation; the skill of fund managers to pick the right investments at the right time; and of the funds to keep one step ahead of the regulators. In today's volatile economic climate, it is a useful book. And its usefulness will last ev en longer, if all of Mr. Donoghue's assumptions are correct.