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