WHAT IS YOUR CASH WORTH?

By Kristin Hovencamp, CPWA®

Whether to hold funds on reserve as part of an asset allocation strategy or for a future liquidity need, investors have cash balances for various reasons. But what if your money is worth less today than it was yesterday? Conservative fixed-income mutual funds, or Money Market Funds (MMF), are a consideration in a higher interest rate environment as a cash alternative.

For investors seeking to generate income from cash, MMF offers the following:

• Safety and Stability – Investments held in MMFs may have minimal price volatility, high credit quality, and low levels of risk. MMFs can also help offset the volatility of bonds and equities. The FDIC does not insure MMF.

• Liquidity – Assets are commonly available the following business day. It is good to remember that MMF can impose redemption fees or suspend an investor’s ability to sell their shares when selecting the fund(s) that meet your investment objectives.

• Shorter duration – MMFs are subject to less interest rate risk due to the types of debt instruments and their short maturity dates. MMF buys securities that mature within one year. However, the fund’s return is not guaranteed to keep up with the inflation rate.