Question about money market fund

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  #1  
Old 09-02-2018, 12:48 PM
queasy27 queasy27 is offline
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Default Question about money market fund

I know almost nothing about investing, so please be gentle.

My 401k portfolio is invested exclusively in mutual funds. About 10 years ago and close to retirement I got very nervous about losses and fluctuations in my portfolio and moved everything into a money market fund. Yes, yes, I know. But it gave me peace of mind.

I expected almost no dividends and that's what I got; perhaps a dollar or two every quarter. The fund remained that way for quite a while, but at the end of 2016 I suddenly started seeing some minor returns. It was maybe $30 at first but has gone up consistently every quarter since then until this quarter was almost $700 reinvested.

So what has changed in the market? It's USAXX, if that matters.

Thanks.
  #2  
Old 09-02-2018, 01:13 PM
tophcfa tophcfa is offline
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Quote:
Originally Posted by queasy27 View Post
I know almost nothing about investing, so please be gentle.

My 401k portfolio is invested exclusively in mutual funds. About 10 years ago and close to retirement I got very nervous about losses and fluctuations in my portfolio and moved everything into a money market fund. Yes, yes, I know. But it gave me peace of mind.

I expected almost no dividends and that's what I got; perhaps a dollar or two every quarter. The fund remained that way for quite a while, but at the end of 2016 I suddenly started seeing some minor returns. It was maybe $30 at first but has gone up consistently every quarter since then until this quarter was almost $700 reinvested.

So what has changed in the market? It's USAXX, if that matters.

Thanks.
Money market funds invest in safe short term bonds and credit what they earn (after fees, which should be very low). A good gauge of what a money market fund should be earning is the current yield on a one month Unites States Treasury bill. The current yield is about 1.92%, which is about as high as it has been in years. Ever since the 2008 market crash, short term T-Bill rates have been close to zero, but have been increasing lately.
  #3  
Old 09-02-2018, 01:39 PM
queasy27 queasy27 is offline
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Thanks, tophcfa. So the difference is just a change in the overall market.

When I look at the historical performance of the fund, it's pretty much 0% from 2007 (when bought in) until Q1 2017. I guess I just expected it to always be zero! What was the impetus for the change in the market, do you know?
  #4  
Old 09-02-2018, 02:44 PM
retiredguy123 retiredguy123 is online now
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A money market fund never changes in net value per share. It is always one dollar. But, interest rates are rising, so, you are getting about 2 percent of interest, which is up from 0.01 percent several years ago. The money market interest rate was not 0 percent it 2007. It was about 4.5 percent in 2007, about 2 percent in 2008, but then it steadily declined to almost 0 percent over several years. You can thank the Federal Reserve for the decline.

Last edited by retiredguy123; 09-02-2018 at 02:50 PM.
  #5  
Old 09-02-2018, 06:46 PM
queasy27 queasy27 is offline
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Thanks. That's simple and makes sense.
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