Independent Adviser: Chasing Pennies
The Independent Adviser for Vanguard Investors, a newsletter which tracks Vanguard funds, published the brief, "Chasing Pennies," which says, "A decade ago, the yields on Vanguard's money funds all fell to 0.01% or 0.02% for the first time. Savers got a brief reprieve (and a modicum of income) for a few years. But, today, we're back at 0.01% yields again. Vanguard has liquidated two state-tax-free funds and begun, as before, to waive expenses to keep yields above zero. What, if anything, can a saver do? What are the risks of trying to outmaneuver what Jeff and I have taken to calling the 'near-zero bound' of cash yields?" They explain, "As the chart makes clear, the fed funds rate is the primary driver of money market yields. The Federal Reserve cutting the fed funds rate from 5.25% down to 0.25% during the Global Financial Crisis acted as a gravitational pull on money market yields. It took a little time, well, several years, but eventually, all of Vanguard's money market funds were at the near-zero bound." The article tells us, "While history may not repeat, it certainly rhymes. With the fed funds rate having again been cut to 0.25% in March 2020 as the COVID-19 pandemic took hold, we remain in another near-zero- bound period for money market yields.... The question is, when can we expect to see yields rise again? Today's consensus view is that the Fed might contemplate hiking the fed funds rate sometime in late 2022. If that's the case, and if history indeed rhymes, then we might see money market yields start to rise in mid-2022 -- which is a year off. So, there might be light at the end of the near-zero-bound tunnel, but, in the meantime, is there some way to increase the yield on your cash, and should you try? In a wonderful essay in The New York Times this past month, contributor `Paul Brown detailed how he set out on a personal journey to raise his cash yields.... What he discovered is pretty much what I've said for quite some time -- you can spend an awful lot of time monkeying around to earn an extra few basis points but when you come right down to it, unless you're hoarding millions, the payout is probably not going to be worth your time and effort."
