Money market funds have long been a popular option for investors looking to park their cash in a low-risk investment that still provides a decent return. These funds invest in short-term, high-quality debt securities and provide investors with daily liquidity. However, with interest rates at historic lows, finding a money market fund that provides a decent yield has become increasingly difficult. This is where SPAXX comes in.
SPAXX is a money market fund offered by Fidelity Investments. It invests in short-term, high-quality debt securities and provides investors with daily liquidity. The fund has a net asset value of $1.00 per share and aims to maintain a stable share price. This means that investors can be confident that their investment will not fluctuate in value.
One of the main advantages of SPAXX is its low expense ratio. At just 0.42%, it is significantly lower than the average expense ratio for money market funds. This means that investors can keep more of their returns.
Another advantage of SPAXX is its high yield relative to other money market funds. As of August 2022, the fund had a 7-day yield of 0.04%, which is higher than the average yield for money market funds. While this may not seem like a lot, it is important to remember that money market funds are low-risk investments for parking your cash, earning interest while providing very good liquidity.
Investors who are looking for a higher yield may want to consider other options, such as certificates of deposit (CDs) or sweep accounts. CDs are time deposits that offer a fixed interest rate for a specific period of time. They are FDIC-insured and offer higher yields than money market funds. Sweep accounts are offered by banks and investment firms and automatically transfer excess cash from a checking account into a higher-yielding investment option, such as a money market fund or a CD.
For investors who are bearish on the markets, SPAXX may be a good option. In a bearish market, investors may want to move their cash into low-risk investments, such as money market funds, to preserve capital. To execute a bearish strategy, investors can sell stocks short, buy put options, or invest in inverse ETFs.
Government money market funds are a popular option for investors seeking capital preservation and minimal risk. Three of the most popular government money market funds are the Vanguard Federal Money Market Fund, the Fidelity Government Money Market Fund, and the Schwab Government Money Fund.
For investors who are looking for the best interest rates on cash, there are several options available. High-yield savings accounts, CDs, and money market funds all offer competitive rates. Here's a monthly roundup of the best interest rates on cash as of August 2022, roughly sorted from shortest to longest maturities:
- High-yield savings accounts: 0.40-0.50%
- 6-month CDs: 0.50-0.60%
- Money market funds: 0.01-0.04%
It is important to remember that interest rates can change quickly and investors should always do their own research before making an investment decision.
A lot has changed in the last two years when it comes to interest rates. In 2020, rates were hugging zero and the banks' 1% looked like a screaming bargain. Now, with rates on money market funds hovering around 0.1%, investors may be tempted to move their cash into risk investments in search of higher returns. However, it is important to remember that money market funds are low-risk investments that provide liquidity and stability.
Fidelity has a long-standing policy of automatically placing excess client cash in retail brokerage and retirement accounts. This means that investors who hold cash in a Fidelity account may be able to earn a higher return by moving their cash into a money market fund like SPAXX.
Bank savings accounts typically yield just 0.33% now, so it may not make sense to put any of your money there. Money market funds, like SPAXX, offer a higher yield and daily liquidity, making them a better option for cash investors.
While yields on money market funds are currently low, if rates go negative, investors will earn zero. Theoretically, that could be the death knell for the funds. However, negative interest rates are unlikely in the near future and money market funds will continue to be a safe haven for cash investors.
