Money market mutual funds, what’s the catch?
Thinking about buying something like SWVXX for my 401k. Pros: * Current 4.27% yield/interest. * Yield is variable based off current interest rates. * Sell any time, no minimum holding period or penalty. * Risk free (?) Am I misunderstanding something like the risk, or what’s the catch?
The catch is that you have to post your TC
assuming it's a reputable fund/brokerage, there shouldn't be any catch other than as you point out, the interest rate can go down. I guess I would ask why you want to try timing the market for a 401K where you will be holding it there for many years (presumably)
Money market funds shouldn't be an alternative to 401k long term investments. You want to use money market funds when you need high liquidity and don't want cash laying around doing nothing in your savings account.
With current stock market valuations you may not even get 4% average returns over the next 10 years. And the risk is much higher. I would put 75% to money market and 25% to SPY at current valuations and move to 50/50 if SPY goes under 350. Move to 25/75 if SPY under 300. Move 100% to SPY if under 250.
There’s no catch. That’s the rate in high inflationary environment. And that’s the reason stocks go down - people move money from low yielding stocks to fixed income no risk investments
I keep my emergency savings in a federal-tax-free money market fund. It loses against inflation still, but the other 95% of my net worth is in equity Money market funds yield goes up and down. It's volatile. Unlike a treasury or brokered CD. But those aren't fully liquid and their value is more volatile
95% in equity? How much did you go down from 1 year ago?
" Money market funds yield goes up and down ". How about principal? When Fed raises the rate doesn't it affect the existing bond value?
4.27 is a pro? Inflation is higher than that so you are losing money
You can’t beat inflation unless you do day trading