Money Market Fund

A money market fund is a type of mutual fund that invests in short-term, high-quality debt securities. They aim to maintain a stable $1.00 NAV while providing liquidity and modest returns.

Characteristics:

• Stable $1.00 share price (usually)
• High liquidity (same-day access)
• Low but consistent yields
• Very low risk
• Not FDIC insured (but highly safe)

What They Invest In:

• Treasury bills (T-bills)
• Commercial paper
• Certificates of deposit (CDs)
• Repurchase agreements
• Short-term government debt

Types of Money Market Funds:

Type	Invests In	Tax Treatment
Government	US Treasury, govt agency	State tax-free
Prime	Corporate + govt debt	Fully taxable
Municipal	State/local govt debt	Often tax-free

Current Yields (2026):

• Government funds: ~4.5-5.0%
• Prime funds: ~4.7-5.2%
• Municipal: ~3.5-4.0% (tax-equivalent higher)

Uses:

1. Emergency Fund: Accessible, stable, earns interest
2. Cash Parking: Temporary holding for deployment
3. Portfolio Ballast: Reduce overall volatility
4. Short-term Goals: Money needed in <1 year

Money Market Fund vs. High-Yield Savings:

Feature	Money Market Fund	HYSA
FDIC Insured	No	Yes (up to $250k)
Yield	Often higher	Competitive
Access	Brokerage account	Bank account
Stability	Extremely stable	Guaranteed

2008 "Breaking the Buck": During the financial crisis, Reserve Primary Fund fell below $1.00 NAV due to Lehman Brothers exposure. Led to SEC reforms for money market fund stability.

When to Use:

• Short-term cash needs (< 1 year)
• Emergency fund
• Waiting to deploy investment capital
• Low-risk portion of portfolio