Are Money Market Funds Safe?

Money Market funds are designed to be a safe place to park your savings temporarily while offering immediate access and higher interest than you’d get with cash. But there are some worries that these funds could trigger a cash crash. In this video I look at whether money markets are safe and what could go wrong. The biggest risk isn’t what you might think!
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Timestamps
00:00 Intro
00:52 Money Market Bubble
01:32 Types
02:28 What’s in Them
05:16 Why Are They So Popular?
08:33 Safe
10:23 Tail Risks
16:15 Biggest Risk
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DISCLAIMER
All information is given for educational purposes and is not financial advice. Ramin does not provide recommendations and is not responsible for investment actions taken by viewers. Figures that are quoted refer to the past and past performance is not a reliable indicator of future results

[@Graemecrompton]

As always, the only reliable non-financial advice based commentary available online

[@stevo728822]

But why isn't he on his yacht in the Caribbean?

[@djayjp]

@@stevo728822 Just sound investment advice. He's not a trader. He is retired so there's that.

[@wlockhart]

​@@stevo728822 Maybe he doesn't own one, want one or need one?

[@Pensioncraft]

Glad you think so! @Graemecrompton

[@chrisf1600]

Only ? Come off it

[@MrHotrod79]

“Consumer has simply not stopped spending” = record personal debt / Credit card debt in US…. Can’t go on forever.

[@VirtualDarKness]

Fair point; is there a website that shows a chart with the amount of personal debt over time?

[@fusemunk]

The original Money Mark Fund in 1980's - Reserve Fund, was basically a bank account that gave limited chequing and a Debit Card (unusual in the USA) . The concept was that it could take a basic customers money and merge it with others, giving leverage to buy short investments at higher rate than an individual could on their own.

[@daveharruk]

Thanks, and kudos for the way you've approached this subject - having watched other rather alarmist videos on certain other channels about this subject, it is good to have some commentary from someone with a cool head. Rather than a clickbait headline you actually answer the question you posed in a calm and considered way.

[@Pensioncraft]

Glad you enjoyed it! @daveharruk

[@jeffocks793]

Great video as always. I admit to skipping some beats on hearing about ceti changes and the removal of ringfencing in 2022 - I believe some return to over extended lending will return. Is the current consumer boom based on depleting savings or wage rises?

[@user-wl7jy9wu9m]

Thanks for all the great informative videos Ramin...may sound a little stupid but how long is too long in my vanguard short-term money market fund.. is 6months the sweet spot? Just when do you know the right time to pull out and find an alternative fund. depending on interest rates

[@MagicNash89]

Would love some sort of reminder type video about the 2008/2009 crisis in the format of how you linked to articles on FT in this video

[@festerarl6653]

Glad to see Dimson, Marsh and Staunton get (yet another) mention.... 😁

[@lplate1000]

Great content as always. Love this channel.

[@Pensioncraft]

Glad you enjoy it! @lplate1000

[@mmabagain]

Currently my Vanguard MM is paying me 5.29%. That is over $2K per month and I'm happy with that. I'll be retiring in April of next year so I am not wanting to take much risk. If the MM payout drops below 4%, I will look at alternatives.

[@flixmaster200]

I just love that you're making the same amount as I am, so I immediately knew you had about 1/2M in your MM.

[@stokey1089]

Not that it’s of any of my business, but if my calculations are right you should be on $4k+ per month on 1m+, not only $2k+. Either your actually invested around 500k in MM or your platform has a ridiculously high platform fee.

[@josepha9313]

Nice segment Ramin. So, in my US Vanguard Federal Reserve MM acct, monthly interest on 100k is about $550 a month. On 100k in my checking acct, monthly div was 90 cents. Yes, that's cents, not dollars. I'm not quite ready to go back into the stock market quite yet. Have been all out for past 16 months. Waiting on a good dip in the general markets. If there is one, will certainly scale in.

[@djayjp]

The dip was October 2022.... US stocks have rallied 28% since then.

[@drhafizm287]

😂

[@krumw2]

Thanks!

[@mohitsaraogi5252]

I want to understand bonds, SOFR yield curve, Money market funds, RRP in depth. How do I proceed?

[@Bracebarian]

How are MM fund taxed in the UK if outside of and ISA or SIPP? Is it CGT or Income Tax?

[@MATIvmr]

I only hold emergency fund in CSH2 MM, I’ll hold it until the rates will be at least 4% and more, and as soon as they’ll go below I’m pulling out

[@TomsPersonalFinance]

I'll probably do something similar. Once the rates drop below 4%, the appeal of them kind of fades.

[@hxjohn]

Using CSH2 To hold as of This month 2 years of expenses for my planned retirement Which is in around 2-3 years Time Considering a bond ladder but I could continue working so The money market fund is more flexible hopefully it's a reasonably safe option Ps Thanks for The video

[@Pensioncraft]

Thank you @hxjohn I appreciate the support! Ramin

[@Abdul_Rahman86]

I’m interested in loan notes. Especially for property development.

[@Ed-bj5eq]

Excellent analysis, thanks

[@centurione6489]

Thanks.

[@Pensioncraft]

Much appreciated! @Ed-bj5eq

[@pietrovalsecchi1680]

Hi Ramin, Have been watching and enjoying your videos for a long time and am one of your biggest fans. Would appreciate it if you could do a video on TLT etf and TMF etf. Thanks a million.

[@oliverjamesspicer]

Really interesting video 😊

[@Pensioncraft]

Thanks @oliverjamesspicer

[@justinarnold1431]

Thank you so much for your videos.

[@Pensioncraft]

You are so welcome! @justinarnold1431

[@alkerbix]

Such a great channel

[@Pensioncraft]

Thank you @alkerbix

[@flixmaster200]

I use MM funds because we are actively house hunting and we don't want to pull our money from the market after a sudden crash. If you're nervous about MM, just do an FDIC high yield savings - they are very close to MM now.

[@DavidLee-uh3xz]

Thank you for doing this video @pensioncraft very imformative

[@Pensioncraft]

Thanks @DavidLee-uh3xz

[@coderider3022]

Is it normal to hold this in a general account (not isa or sipp)?

[@kostaskolotouros4345]

Thank you for another useful video Ramin. Would Money Market Funds make a sensible third fund in a 3 fund portfolio (E.g. 60% equities, 20% bonds & 20% money market funds)?

[@user-go7mc4ez1d]

Why would you hold bonds over MMFs right now?

[@festerarl6653]

Ramin has done a video on this, and iirc he replaces his bond funds with either mmfs or single govvies. So arguably - yes.

[@MrHotrod79]

“Very high rates central banks currently setting” = Mean reverted rates…. A Run on money Market funds is exactly what happened to the Standard Life Sterling Fund in 2008/9. SL ended up putting in corporate liquidity to the fund from memory…

[@akshaypotdar1840]

What are the UK tax implications on MMF returns if invested outside of ISA?

[@simon1066]

I use L&G Cash fund within tax efficient wrappers for my cash holdings approx 5% of portfolio for 3 years expenses. I think this is sensible, but appreciate any feedback?

[@kygo]

Why on UK platforms can't we invest in foreign money market funds / Emerging Market funds, surely they would carry a much higher interest rate %?

[@michaeldawson6309]

What are your views on loosing FCS protection when ticking the Trading212 earn interest button what is the risk?

[@VirtualDarKness]

17:18 very hard to imagine a scenario that almost happened just earlier this year? or that wasn't it? (SVB)

[@george6977]

Why take the risk of gating in MMF when you could buy individual short dated gilts? Americans can buy short term Treasuries from Treasury Direct.

[@jongreenwood3029]

Slightly alarmed that someone over 20 thinks a “normal level” for interest rates is 2-2.5%

[@michaeldawson6309]

Normal for me is around 5% coming from the 80's ! 10%

[@MattMcQueen1]

A question about Vanguard's Sterling Short-Term Money Market Fund. Is it true that the price is always £1.00 if you are investing, so £1,000 will always buy 1000 units? If so, do you get the same payout at the end of the month, no matter if you invest on the 1st of the month, or the second last day of the month?

[@actuallythedog263]

Always £1 but your interest is pro-ratered

[@MattMcQueen1]

@@actuallythedog263 thanks, that’s what I would expect. Just wanted confirmation.

[@paul_k_7351]

Has anyone been to the shops recently? No one is buying anything, they are just window shopping. Not sure where this retail optimism comes from!

[@kinggeoffrey3801]

Pubs and restaurants are always full where I live. Must be credit spending or the bank of dad.

[@Ed-oj3yv]

If I buy CSH2 this tax year, and sell it next tax year, will i use next tax years interest allowance?

[@MrNickml]

This video demonstrates why PensionCraft is growing a thriving community of people keen to learn and educate themselves on how to make better-informed investment decisions .. and with access to a toolkit of high quality, informative and well-balanced content ... keep up the excellent work Ramin!

[@Pensioncraft]

Thank you @MrNickml

[@Birdmacher]

Hmm, seems like some banks may be showing some cracks as commercial real estate suffers.

[@VirtualDarKness]

Interesting timing 😅 the video is 6 days old and 4 days ago Trading 212 wrote to say from January you're only going to get interest on cash if you opt in to use qualifying money market funds 🙂

[@thomasmcdonald5542]

Im using CSH2 and single short duration governments gilts like TN24 for my short term saving in my SIPP instead of bond ETFs, its just about 10% though of my overall holdings. Thanks Ramin for explaining how to access these instruments and how they work in one of your previous videos. I have not used these as a flight to safety but rather just for short term good levels of effective and stable interest on my cash like buffer.

[@Charzhino]

Can you give me a brief run down on CSH2? How much does it yield and how often?

[@Marenqo]

Every day, trade 212

[@Marenqo]

5.4 percent or so

[@thomasmcdonald5542]

@@Charzhino CSH2 is tied to the SONIA rate which is a bit above 5% at the moment. It’s accumulating daily so the amount invested will tick up everyday.

[@Charzhino]

@@thomasmcdonald5542 thanks.

[@MagicNash89]

What does chastising the banks actually mean, a strongly worded letter/call?🤣

[@GavinLawrence747]

Can anyone recommend a website or tool for me to benchmark my freetrade GIA against the S&P/Nasdaq or other ETFs?

[@george6977]

JustETF for UK and Europe; Portfolio visualiser for US.

[@Vikas-pv3ie]

Is there any way for common man to be able to buy only UK Treasury Bills and avoid MMFs?

[@matt49125]

UK Gilts or US T Bills? He did a video on Gilts a few months ago. Not sure about US TBs from the UK. They like to make it hard for us so that we don't make the money availble to the elites..

[@seanbyrne2220]

Should you use a money market fund? As as a 2 year buffer. In case your main pension fund. Crashes

[@david_akerman]

That's what I'm doing. I'm approaching retirement and have a MM fund as a buffer to draw from in case my stocks fall, or grow more slowly than the MM.

[@seanbyrne2220]

@david_akerman It's always reassuring. To hear people. Thinking the same way as you

[@informer-365]

Why can’t I see chs2 on trading 212

[@Homo-Maverick]

CSH2 not CHS2 🙃

[@informer-365]

@@Homo-Maverick thanks I'm assuming the spread is costly?

[@elephantandcastle838]

Isn't holding MM funds in a "fun portfolio" an oxymoron? The only reason for holding MM funds is and has always been to avoid market volatility for access to short term cash requirements. Any other reason is just gambling as you'll discover when you notice that the other asset classes have increased in price when you cure your addiction

[@robertnicholson1409]

No !

[@oneeleven9832]

If you’ve read the book..The Great Taking & the author is correct then ..NO

[@scotdoc]

We’re not at the peak of the cycle just yet. Another couple of years to go (based on average of 18 years). Crashes are getting bigger.

[@ZeroRiskAppetite]

"...the biggest risk is not what you might think. This video is sponsored by... "

[@VirtualDarKness]

And now the sponsor / T212 is asking people to use MMF if they want to keep earning interest on cash

[@XORTION]

More capital comes more greed. Fiat is slowly collapsing and bank sectors also. I believe I will see a bail in one day in my life time

[@stevo728822]

Money Market funds fell 30% last year.

[@djayjp]

Please use Chapstick or similar. Your lips are very dry and cracked.

[@matt49125]

Probably from walking Teddy in the cold

[@djayjp]

@@matt49125 lol no they're literally always like this in every video.

[@GavinLawrence747]

Thanks!

[@Pensioncraft]

Thank you @mccready7479 much appreciated! Ramin