The practice of keeping customer's cash in brokerage sweep accounts that pay little or no interest has been going on for a long time. It wasn't so obvious when interest rates were rock bottom, but over the last two years, money market rates have moved up to about 5% and the “cat is out of the bag”.
For the last two years, I've been advocating moving funds to better yielding MM's that pay solid interest, provide full liquidity and are as safe as they come.
Now, MM rates have been falling over the last several weeks. Some people are just finding out that MM rates are a whole lot higher than sweep rates. Sweep rates might be .1% while MM rates are around 5%. That is not a typo! That is a difference of 4.9%. Some folks are moving to money markets just as rates are starting to fall. Bad timing.
Bad timing is an ongoing occurrence in the markets. To be successful, it is critical to be aware of and to be current on what is happening in markets. Just giving funds to a brokerage and expecting them to do the right thing is wishful thinking and a good way to get taken.
A large majority of people in the markets have delayed reactions to market events. These delays can critically damage investment returns. When everyone starts doing something, like investing in a certain stock, that means the great returns have already been captured by aware investors and those jumping it at the last moment are likely to suffer losses.
Be aware of what is going on! If you expect to give your money to someone to get great returns in a "set it and forget it" manner, you're at serious risk. As Regan said, “Trust but verify”. If you don’t ask, they will not tell you.
Be smart, be aware, be informed and be successful.
