Money Market Funds Awash With Cash Are Being Forced To Make Riskier Investments

Tuesday, February 05, 2013 07:27
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Money Market Funds Awash With Cash Are Being Forced To Make Riskier Investments

Tags: interest rates | investment strategies | mutual funds

Investors are plowing too much cash into money market funds, forcing the funds to make investments such as buying French bank debt that not long ago would have been considered too risky.
 
Billions of dollars at the funds had, until recently, been held in zero-interest checking accounts for businesses, municipalities, and charitable organizations.

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Money market funds are utilized by retail investors, businesses, and others looking for a safe place to store cash.
 
Money market fund companies target a share value of $1. Under SEC rules, portfolios at money funds must contain securities with average maturities of 60 days or less, which would be considered liquid.
 
Many advisors recommend that investors use funds that only invest in Treasuries and other short-term securities like repos that are backed by the Treasury and other government securities.
 
Investors have stayed with money funds despite their low returns. Yields are unlikely to go up as long as the Fed’s bond-buying program continues.

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