Beginning in October, the values of some money market funds will begin to fluctuate with changes in market value rather than be fixed at $1.00. Additionally some will be required, under certain circumstances, to place redemption penalties and limitations on withdrawals. You will likely be receiving notices regarding this in coming weeks from your custodian.
The key changes are that investors which are classified as ‘institutional’ by the new rules will no longer be able to invest in money market funds with a guaranteed $1.00 share price unless the funds only hold US Treasury bills and other short term obligations of the federal government. Individuals (including IRAs and revocable trusts) can continue to invest in money funds holding corporate and municipal issues at a fixed $1.00 share price. However, these funds are potentially subject to redemption penalties and suspension of liquidity. Most clients are invested in US government money market funds that will not be impacted by these rule changes. Schwab has announced that they will automatically move institutional holders of corporate and municipal money market fund to their government money market fund. This is the same fund in which most of our clients are currently invested. Very few clients, if any, will need to take any action. We will include an individual review and any recommendations in your first quarter report.
The impact of these changes in money market funds would likely be felt only in a severe market panic such as the 2008 Financial Crisis. Nevertheless, we place the safety and liquidity of client cash above all other considerations and for most situations, US government money funds remain the best option.