Share this Post on Twitter

Monday, August 17, 2009

Money Market Funds Yielding Nada... In Other Words "Solid" Real Returns

USA Today reports on the (lack of) returns in money market space:

Money isn't everything, at least to investors in money market funds. Yields are at all-time lows, and nearly a quarter of funds yield nothing at all.

The average money fund yielded an annualized 0.08% the week ended Aug. 4, the latest data from iMoneyNet, which tracks funds, show. At that rate, a $10,000 investment would return 15 cents a week. But 275 taxable funds have no yield, 23% of the 1,180 funds iMoneyNet tracks.
With that as a background, this won't surprise you. Over the past twelve months, the Lipper Money Market Index has returned 1.01% (higher than 0.08%, but minuscule none-the-less).

However, this may. Over that same period, inflation (as measured by CPI) has DECREASED 2.1% year over year, which has resulted in real returns in money market space (i.e. returns less inflation OR importantly returns + deflation) up more than 3%.

With the economy shrinking and expected by many to grow at 2-3% when it does rebound (in real terms), 3% real returns don't seem so bad.

Source: Lipper / BLS