A couple of years ago, I moved to Fidelity. I had significant cash resources waiting for investment. I didn't ask the right questions and found that they had parked my money in a liquid fund where the returns were woefully low compared to their other funds. About a year later, I found out that I had missed getting much higher returns on my liquid funds. I learned on that day to always ask a lot of questions. If you don't ask, they don't tell! Caveat Emptor!
Now I always look into the 7day yield to determine which funds and companies have the better returns. Providing this yield is a regulatory requirement so the consumer has a basis for comparing funds. Money market funds will always try to cloud the issue to persuade the investor to just leave the funds with their fund.
Some of the arguments fund companies will bring up are the following:
- The holdings are different. This is true, but if they are all government securities, they should be in the same ball park. Sometimes, they put junk in their portfolios and bury it, such as Fanny Mae's in 2008. Do your homework. This is really the only significant difference between money market funds. The prospectus is on-line. If you don't know what's "in the mix" or if there are some type of security that you are unfamiliar with, stay away. It could be a land mine!
- They'll say the 7day yield is not valid because it changes so often that when securities roll off, the yield changes. If you compare funds over time, especially in a rising rate environment, some funds will move up quickly and others will take their "good ole time." The 7day yield is a required regulatory number for good reason. Don't believe the BS.
If you don't check this information when parking significant funds, it's your own fault. You were warned.
Every company makes money some way. You just have to find out where they "hide the sausage". I suspect "free commissions" were the result of giving the fund companies "no cost funds" that they lend out at much better rates. The returns are much better lending out low cost funds than charging commissions.
I've been tracking three money market funds, VMFXX (Vanguard), TSCXX (TRowe) and SPAXX(Fidelity) for three months. Here's what I found:
- VMFXX raised their rates quickly with the market and have been the highest for 95% of the days during the three months.
- TSCXX was slow to raise rates.
- SPAXX ALWAYs lags way behind both the others.
- VMFXX was ALWAYS 25 to 35 basis points (100's of a percent) ahead of SPAXX.
- TSCXX took a long time to catch up to VMFXX, but now they exceed VMFXX.
So watch yourself out there. Keep your "dry powder" increasing in value at the best possible rate. The fund companies love their clients to be blissfully unaware. After all, it's to their advantage.
Money is often made by paying attention to details which can really add to your “snowball” over time.
Be smart, be well-read, be aware and be successful.
"You don’t have to be brilliant, only a little wiser than the other guys, on average, for a long time"
- Charlie Munger
