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Hoping everyone survived 2022 tax season: call if you need anything!
The news about money market funds continues, so this week I’m taking a deep dive. I apologize in advance for the length of this week’s Thoughts.
Find out more about SIPC here: What is SIPC?
Hoping everyone survived 2022 tax season: call if you need anything!
The news about money market funds continues, so this week I’m taking a deep dive. I apologize in advance for the length of this week’s Thoughts.
Find out more about SIPC here: What is SIPC?
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It's not how much you make, but how much you keep, how hard it works for you, and how many generations you keep it for.” Robert T. Kiyosaki
More than $300 billion flowed into money markets following the March banking crisis and as always, there are risks. Let’s look at the nuts and bolts. What Are Money Market Funds? Money Market Mutual Funds (MMMFs) are simply a mutual fund. I use them to hold cash that I’m waiting to invest…or that I know you might need in the near future. Usually, they don’t get much attention as they are so low on the risk scale: they hold short-term, liquid instruments like cash, CDs, and US Treasury bills. They follow federal guidelines around quality, maturity, liquidity, and diversification and are required to hold at least 10% in daily liquid assets and 30% in weekly liquid assets. MMMFs have historically maintained a $1-a-share value but there is no guarantee investors won’t lose money: they aren’t insured by the FDIC, but instead, by SIPC.
Think Credit Unions…where you own “shares” that are worth $1: has anyone ever lost a penny in a Credit Union? Over the years I’ve written about how investment firms keep MMMFs at $1 as there would be a national uproar if an MMMF “broke the buck,” aka dropped below $1 a share. The short answer to what a guarantee is worth is the fact that banks, brokerage firms, and credit unions are all regulated by different regulatory bodies, and each has different rules and protections for customers. Fees among MMMFs range from 0.09% at Vanguard to 0.34% at Schwab and 0.42% at Fidelity and you buy an MMMF just like any other stock or mutual fund. The main difference is what their prospectus says they can invest in: my job is making sure I know what is in the MMMFs I use for your portfolio and that I track MMMF strategies and holdings. What’s Their Appeal? Today the yields are the draw. Fidelity’s MMMF (SPAXX), had a 4.49% yield as of April 5, compared with a 0.06% national average on interest checking accounts and 0.37% on savings accounts. MMMFs can more quickly increase (or decrease) in response to the changes made by the FED than banks can. Over 20 years, 86% of changes in the FED Fund Rate flowed through to retail money funds, compared with 26% for retail CDs.
What are the Risks? MMMFs are sensitive to changing interest rates and unlike traditional savings accounts, they aren’t covered by FDIC insurance. The biggest issues in the past have been with institutional prime funds like Schwab Value Advantage SWVXX, because they can hold commercial paper. Schwab saw $8.8 billion in net outflows from its prime funds in three days in mid-March, and much of that flow into their government and Treasury funds.
How do They Differ? There are three main kinds of MMMFs: government, prime and Treasury. Government money funds make up the largest chunk of the retail fund universe.
Government funds: These MMMFs hold at least 99.5% of their assets in cash, US government securities and repurchase agreements (collateralized short-term loans) that are fully backed by government securities.
Prime funds: These hold cash, floating-rate debt, and commercial paper, which could be from highly rated banks in the US and abroad, as well as debt of US government agencies and government-sponsored enterprises such as Fannie Mae. A fund may not have “prime” in its name — Schwab’s prime fund is the Value Advantage Money Fund (SWVXX), and Fidelity’s is the Fidelity Money Market Fund.
Treasury funds: These funds invest largely in cash and Treasury bills as well as repurchase agreements collateralized by Treasuries. There are also Treasury-only funds that just hold cash and Treasuries.
Why does it matter to you? In order to earn you more than the piddly yield paid by Schwab’s dismal SWEEP fund…I have to actually place a trade. This means there is a 1-day delay for the funds to be available if you need me to send out money…so it requires us to communicate on your cash needs. I can buy any of the above MMMFs, but have used SWVXX for decades, and while there are always risks in any investment, I am not concerned about SWVXX. Please know, the day I become concerned, I will send out a special edition of Thoughts! If you are concerned about where your cash is parked, let’s talk! Be sure to check out the Investopedia piece on SIPC and the protections for brokerage customers.
Fording a Clean Steel Economy in the United States
Achieving a net-zero US steel sector will require investments in new, low-emissions primary steel production, reports RMI. Read more here… RMI and a Clean Steel Economy
This is a pretty heavy duty “snippet,” so I’ve cut it exactly from the RMI article above. It is really important to know how all of the pieces will fit together if we are going to combat climate change.
In a big year for climate action, 2022 saw the United States double down on strategies and mechanisms to accelerate its economy toward achieving net zero. These incentives at the state and federal level (including the CHIPS and Science Act, the Infrastructure Investment and Jobs Act, and the Inflation Reduction Act) promise to slash emissions across key sectors, strengthen communities, and provide new development opportunities. This is a critical boost for US heavy industries, particularly the iron and steel sector, which need both regulatory and economic instruments to transition effectively.
The US steel industry claims one of the cleanest global emissions footprints due to its high recycling rate of scrap. Roughly 70% of the steel made in the United States comes from this recycled scrap (known as secondary steel) and is produced in electric arc furnaces (EAFs, also known as mini mills). The collection, sorting, and market for scrap is well executed, with a recycling rate between 80 and 90 percent. But the supply of scrap is fundamentally limited by the rate at which steel-containing products like cars, buildings, and white goods reach end-of-life. This means that even as scrap-based suppliers expand and attempt to move up the quality ladder into sectors like automotive, achieving a net-zero steel sector will still require investments in new low-emissions ore-based primary steel. In fact, the handful of ore-based steel assets in the Midwest disproportionally accounts for approximately 73 percent of the sector’s emissions due to the higher energy use and reliance on coal.
Why does it matter to you? Last weekend I participated in the steel recycling industry that is helping take us to Net Zero. Many of you have seen my colorfully decorated Philco Fridge, sitting on my back deck, since I moved into my house. It had gotten rusty and ugly looking, and my daughter Heather told me it was time to let it go, so I called “Brad” my junk hauler friend to take it before I changed my mind.
When I told my dad I had a scrap metal “Junker” pick it up for the next adventure this 70-year-old Fridge might have, he wrote me this story about when he and my mom bought it! I do encourage you to recycle items like this: they are “gold!” “Goodbye old friend. It was time to say goodbye to an old family friend (Philco) that had worked for us for so many years. Phil just would not stop running. He served us at Deziel for 7 years before going with us to Grant for 8 more years. Then moved to Lancaster in 1968. I can’t remember replacing him for 30 years in Lancaster. So, he came with us to Kerrville in 1999. I remember buying a new fridge in Kerrville. How did Julie get him to Tulsa? How did we get Phil? Mary and I got married in early January 1953. Lived with my Mom and Dad for 3 months. We bought the house on Deziel and starting housekeeping in March and started collecting household stuff for the rest of our life. When and how did you get Phil to Tulsa? When we started housekeeping our first cooler was an old Icebox that Mary’s sister gave us. It was a chore keeping enough ice in it to keep things cold and when it started to warm up in Michigan, we started looking for a real refrigerator. Until then, in the cold Michigan winter, we left some things outside at night. Don Gogolin’s (Don the Dentist) Father had just lost his wife and was selling all his furniture. He had 2 fridges for sale. One was an old one that he wanted $15.00 for and the other was an almost new Philco that he wanted $150.00 for. We really wanted the Philco, and he promised us that we could buy it. We started looking for $150.00 and got Household Finance to lend us the money. It would take us a year at $15.00/mo to pay it off. When we got back to him, he said he had sold it. I had never seen my dad, BW, so angry. He went to see Mr. Gogolin and really made him feel bad. He said those young kids really need that fridge and you had promised that they could buy it. He changed his mind and let us have it. 1953 till 2023. All good things have to end.”
______________________________________________________________________________Julie Skye | 918-408-7981 | julie@sustainableadvisors.com
Required Disclosures: Always read the fine print! This content reflects the opinions of Julie Skye and is subject to change without notice. This content is for informational and entertainment purposes, and it is not a recommendation regarding the purchase or sale of any security. There is no guarantee that any statements, opinions, or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Securities investing involves risk, including the potential for loss of principal. There is no assurance any investment plan or strategy will be successful.
Julie is an Investment Advisor Representative of Sustainable Advisors Alliance, LLC (SAA, LLC): Advisory services are provided by SAA, LLC. Registration with the SEC does not imply a certain level of skill or training.