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U.S. Money Market Fund Assets Reach Record High Amid Yield Hunger

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U.S. money market fund assets hit a new record of $5.8 trillion this week as yield-hungry investors continue to turn to short-term, low-risk securities.

description: a graph showing the steady increase in u.s. money market fund assets over the past few years.

By John McCrank. NEW YORK (Reuters) - U.S. money market fund assets hit a new record of $5.8 trillion this week as yield-hungry investors continued to turn to short-term, low-risk securities. Money market funds are mutual funds that invest in short-term, low-risk securities such as certificates of deposit, municipal bonds, and Treasury bills. They are widely considered a cash-equivalent investment due to their low volatility and minimal risk.

Investors are turning to these cash-equivalent investments, some of which are yielding 5% or more. But it pays to have a strategy beyond simply chasing yield. Investors should also pay attention to the quality and liquidity of a fund's holdings.

The funds are paying enticing interest rates right now, but the debt ceiling and signs of weakness in the banking system are worrisome, leading some investors to question whether the risk are worth the reward. Money market mutual fund yields have recently become more attractive, but some investors worry about increased risk as the debt ceiling debate heats up.

Franklin Templeton says its fund is the first U.S. registered mutual fund run on blockchain technology. The fund will invest in traditional money market securities and use blockchain to track shareholder transactions, thereby increasing transparency and efficiency. This could potentially reduce transaction costs and increase liquidity.

Money market funds have historically been considered a safe haven for investors looking to park cash for short periods of time. However, the 2008 financial crisis exposed the risk that can come with these seemingly low-risk investments. The Reserve Primary Fund, one of the largest money market funds, "broke the buck" when it fell below its $1 net asset value per share. This led to a run on other money market funds and a freeze on the commercial paper market, which companies use to raise short-term funds.

The Securities and Exchange Commission has since implemented new rules aimed at reducing the risk of a similar event happening again. These rules include stricter credit quality requirements and shorter maturities on investments.

Investors looking to invest in money market funds should do their due diligence and research the fund's holdings, fees, and liquidity. They should also consider their investment goals and time horizon. Money market funds are not ideal for long-term investing but can provide a safe place to park cash for short periods of time.

How do you choose the best money market mutual funds? It's hardly an academic question, since you can enjoy a yield averaging 4.63% from the best funds. Bankrate offers a helpful tool that allows investors to compare money market funds by yield, fees, and minimum investment requirements.

Overall, money market funds continue to be a popular choice for investors looking for a low-risk investment option with competitive yields. With U.S. money market fund assets hitting a new record high, it's clear that investors are hungry for yield but also mindful of the risk that come with chasing it. As long as investors stay informed and make educated decisions, money market funds can be a valuable tool in their investment portfolio.

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