We recently asked SYM’s Chief Investment Officer Andy Popenfoose, “Why shouldn’t I just take the money market rate of return and be safe?” This is a paraphrase of what he shared. Catch his exact words in the video above.
Money markets have their appeal but there are long-term drawbacks to consider.
Money market rates can be attractive to some investors because they show a nice steady increase with low drama whereas more traditional investments like bonds and stocks typically show more ups and downs from day to day.
However, the temptation to go to money markets is not without cost. Money market rates have some drawbacks that may limit their long-term performance.
Inflation.
Money market rates often fail to keep up with inflation, which means that the real value of the investment may decline over time. Stocks, on the other hand, tend to outperform inflation in the long run, although they may have more volatility in the short term.
Reinvestment risk.
Another disadvantage of money market rates is that they are subject to reinvestment risk, which means that the investor has to reinvest the principal and interest at the prevailing market rates when the securities mature. This can be problematic when interest rates fall, especially during recessions, when investors may need to rely more on their bonds. Core bonds, which have longer maturities, can offer more stability and protection from reinvestment risk, as they lock in the interest rate for a longer period of time.
The bottom line.
Core bonds may be a better choice than money market rates for investors who are looking for a balance between income and safety. Be sure to talk to a SYM Financial advisor about your specific situation. They can help you find the right mix of investments for your portfolio to meet your needs and your goals.
Disclosure:
The opinions expressed herein are those of SYM Financial Corporation (“SYM”) and are subject to change without notice.
This material is not financial advice or an offer to sell any product. SYM reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs and there is no guarantee that their assessment of investments will be accurate. This material contains projections, forecasts, estimates, beliefs and similar information (“forward looking information”). Forward looking information is subject to inherent uncertainties and qualifications and is based on numerous assumptions, in each case whether or not identified herein.
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