By: David I Gensler, MSPA, MAAA, EA
How much time have you and your advisor spent on your 401(k) plan’s “ultra-safe” instrument, its money market fund? If you are like most of us, the answer is probably none. But the times, they are a changin’.
Money market funds are mutual funds that invest in short-term debt. About 47% of defined contribution plans offered money funds or some other cash equivalent in 2014 (Source – Data gathered by the Plan Sponsor Council of America). It is viewed by most participants as the ultimate safe investment. Their thinking is simple: it is a safe haven for my money. It may not go up by very much (it won’t) but it won’t go down. And it becomes particularly attractive for those participants getting closer to or already in retirement. They know that they can take a distribution from their good old money market fund and not have to worry if the market is up or down. And, of course, there are no redemption fees.