Thanks to the recent swathe of banking regulation, investors can expect the money market funds associated with their brokerage accounts to become less and less temping as cash management products, with disastrous consequences for the system as a result. At the moment, these funds serve as a place to park uninvested funds while looking for an appropriate opportunity or as a longer-term location to store cash as a risk hedge in a larger portfolio plan. Most brokerage clients might not even consider it an investment; thanks to automatic sweeps of cash in accounts, clients can earn interest on their uninvested balances.
As anybody with such an account can attest, the returns have tanked in the past decade, and thanks to investors? friends at the SEC, they stand only to drop farther. As reported by the Wall Street Journal, ?under the new rules, established by the Securities and Exchange Commission in January, money funds must hold more liquid assets and limit their investments to only the highest-quality securities. In addition, they must reduce the average maturity of the securities they hold.? More specifically, a certain portion of the fund portfolio must be convertible to cash in one business day (10%), and another portion must either mature in less than 60 days or be convertible to cash in a week or less (30%).