The 7 Best Money Market Funds to Buy for 2024

Both the European Central Bank and the Bank of Canada have initiated 25 basis point cuts in their interest rates, but their US counterpart has not followed suit.

In the June decision, the Federal Reserve again kept its policy interest rate unchanged at 5.25% to 5.5% and indicated that markets could expect only one possible cut for the remainder of 2024.

The decision bodes well for investors who own money market funds, which in recent years have offered yields that outpace those of dividend stocks and even real estate investment trusts (REITs) while introducing volatility. and much lower risk.

With high short-term interest rates, the instruments held by these funds – treasury bills, certificates of deposit, repurchase agreements and commercial paper – are yielding above-average returns.

“Money market funds invest in highly liquid, short-term securities with the objective of preserving your capital while also providing income at prevailing market rates,” says Nafis Smith, director and head of taxable money markets at Vanguard. .

This, combined with their excellent credit quality and liquidity, allows money market funds to do what most mutual funds cannot – maintain a fixed net asset value (NAV) per share of $1 .

In practice, this means that investors who hold shares of a money market fund can expect their holdings to hold a stable value in all but the most extreme market environments or black swan events.

“The risk associated with money funds is very low, given that the SEC mandates that only securities with high credit quality and shorter maturities be eligible holdings,” says Smith. “For investors, it’s like you’re getting paid to be patient while the Federal Reserve works to tame inflation.”

This stability, along with the promise of monthly distributions in most cases, gives you an excellent means of keeping short-term money safe and productive in a brokerage account.

“With short-term interest rates above 5%, money market funds have once again become a significant part of the investment landscape,” says James Dowd, CEO at North Capital. “Consumers are smart – they won’t settle for a 1% interest rate at their bank if they can easily invest in a money market fund and earn five times the return.”

Here are seven of the best money market funds to buy for 2024:

“By offering an institutional share class with same-day liquidity to institutions and individuals, we hope to encourage all types of investors to include NCGXX in their liquidity management,” says Dowd. This money market fund is currently shedding zero expense ratios, which helps it offer a high seven-day SEC yield of 5.4%. If the fee waiver had not been imposed, the yield would have been lower at 3.5%.

NCGXX is classified as a government money market fund, which means that legally, it must invest at least 99.5% of its assets in government-issued securities. In the case of NCGXX, its portfolio consists mainly of treasury bills. However, other government money market funds may also hold repurchase agreements collateralized by cash or treasury bills, or even debt issued by a government agency.

“Money market funds are highly correlated with short-term interest rates,” says Smith. “If you look back at how much the target federal funds rate has changed over the past year, you’ll see that money market rates have moved in lockstep.” This can be seen with the SEC’s VMFXX seven-day yield of 5.3%, which sits in the middle of the federal funds range of 5.25% to 5.5%.

VMFXX is also a government money market fund. Its 255 holdings are split between repurchase agreements, US government bonds and Treasuries. It is one of Vanguard’s oldest funds, with an inception date of July 1981 and a history of surviving major market turmoil. However, while it charges a fairly low expense ratio of 0.11%, a minimum investment of $3,000 is required.

“Money market funds can be a great way to save for short-term goals like buying a car, a down payment, or building your emergency savings,” says Sophoan Prak, a certified financial planner and financial advisor at Vanguard. “In general, if you have an expense planned within a year, a money market fund can be a good investment option for it.” Another option from Vanguard is VUSXX.

VUSXX is also classified as a government money market fund, but unlike VMFXX, it eschews government bonds and repurchase agreements to focus solely on Treasury bills. Practically, however, the two funds are almost identical in terms of risk and return, with VUSXX also paying a seven-day SEC yield of 5.3%. However, it charges a lower expense ratio of 0.09%.

“Primary money market funds invest in debt securities issued by corporations, government agencies and government-sponsored entities,” says Jeff Fisher, managing director and head of investment strategy at Peapack Private, Peapack’s wealth division. -Gladstone Bank. In addition to the usual treasury bills and repurchase agreements, these funds may also hold commercial paper and time deposits.

Before fees are factored in, a mainstream money market fund like SWVXX can be expected to pay a higher yield than a government money market fund. This is because the slightly higher credit risk of its non-government holdings is offset by higher income. But because SWVXX charges a higher expense ratio of 0.34%, its seven-day SEC yield is reduced to just 5.2%, lower than VUSXX and VMFXX.

If you’re investing on Fidelity’s brokerage platform, you can access a variety of money market funds with no transaction fees, no minimum investment required. A popular choice is SPRXX, which has been around since January 1989. As with SWVXX, SPRXX is a leading money market fund. While it holds some treasury and repurchase agreements, it also holds time deposits and commercial paper.

While this fund boasts good access with no transaction fees or minimum investment required, it pays a much lower seven-day SEC yield of 5%. This is mainly due to its high expense ratio of 0.42%, which feeds into the net income expected by investors. In addition, although not a significant risk, investors should be aware that more than 25% of the assets held by SPRXX are issued by financial institutions.

“Tax-exempt money market funds invest in debt securities issued by states, counties, school districts and other municipal borrowers,” says Fisher. “This income is exempt from U.S. income taxes and, in some cases, from state income taxes.” While the yields on these funds may seem low at first glance, they are often higher when cashed out on a tax-adjusted basis, especially for high-income investors.

For this role, Schwab offers SWWXX, which holds variable rate demand notes, tender option bonds and commercial paper from various local government units and municipalities. These are often issued to finance infrastructure projects such as hospitals, roads, bridges and waterworks. The 3% seven-day SEC yield paid by SWWXX is exempt from both federal income tax and the alternative minimum tax.

Environmental, social and governance or ESG conscious investors often use a set of exclusionary screens when it comes to their properties. For example, they may choose to exclude stocks or bonds issued by companies involved in certain industries. Common industries excluded from ESG investors include oil sands, thermal coal, civilian firearms, nuclear weapons, spirits and tobacco.

Money market funds can also adopt these ESG controllers. A great example is PINXX, which controls the above industries, while also excluding companies that violate the United Nations Global Compact. Otherwise, PINXX functions similarly to a regular mainstream money market fund. However, it pays a lower seven-day SEC yield of 5% due to the presence of a fairly high expense ratio of 0.49%.