In any well-rounded investment portfolio, the role of “dry powder” — cash and cash equivalents — is crucial alongside the usual stocks and bonds.
For value investors, this liquidity serves as a reserve, ready to be deployed during opportune buying moments in the market. For retirees, it’s a strategy to reduce volatility and drawdowns, providing stability in their portfolio and peace of mind for their income.
A key instrument for managing this aspect of a portfolio is a money market mutual fund. These funds are designed with safety in mind, maintaining their net asset value, or NAV, at a stable $1. This means that even as stock and bond funds fluctuate, the price of a money market fund will remain stable, barring extreme circumstances.
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This stability is achieved by investing in high-quality, ultra-short-term instruments like Treasury bills, commercial paper and certificates of deposit, providing a strong combination of liquidity, safety and income for investors. When investors purchase a money market fund, they benefit from the excellent credit quality of its underlying holdings, along with the potential for income.
Additionally, the yields of these funds tend to move in tandem with prevailing interest rates, offering returns that adjust with the market. With the Federal Reserve keeping rates high in 2024, some money market funds are paying 7-day SEC yields of 5% and above.
“If you have cash that you may need to access soon, a high yielding money market fund is a good place to park it safely,” says Jim Penna, senior manager of retirement services at VectorVest. For example, an investor could use a money market fund to hold an emergency fund, ensuring safety while earning monthly interest to help ward off the eroding effects of inflation.
For investors using Charles Schwab’s brokerage platform, there are several excellent money market fund options with varying yields, holdings and tax efficiency. In general, these funds are particularly appealing due to several factors: They typically come with no transaction fees, most have $0 minimum investments and they offer competitive expense ratios.
This combination makes them an accessible and cost-effective choice for investors looking to maintain a portion of their portfolio in liquid, low-risk assets.
Here are five of the best Schwab money market funds to buy today:
| Fund | Expense ratio | 7-day SEC yield as of Jan. 17 |
| Schwab Value Advantage Money Fund — Investor Shares (ticker: SWVXX) | 0.34% | 5.2% |
| Schwab Government Money Fund — Investor Shares (SNVXX) | 0.34% | 5.1% |
| Schwab Treasury Obligations Money Fund — Investor Shares (SNOXX) | 0.34% | 5% |
| Schwab U.S. Treasury Money Fund — Investor Shares (SNSXX) | 0.34% | 5.1% |
| Schwab Municipal Money Fund — Investor Shares (SWTXX) | 0.34% | 1.6% |
Schwab Value Advantage Money Fund — Investor Shares (SWVXX)
“One of the Schwab money market funds I like is SWVXX,” Penna says. “It invests in short-term securities issued by the U.S. government, corporations and financial institutions, and currently has a 7-day SEC yield of 5.2%.” As a prime money market fund, SWVXX is able to stretch beyond Treasury bills and repurchase agreements to hunt for extra yield, at the cost of slightly higher credit risk.
“The benefit of SWVXX, for the average retail investor, is that there is no minimal investment,” Penna says. Investors of all account sizes can therefore make use of SWVXX to safeguard their cash and earn competitive interest without worrying about having enough to invest. The fund charges a 0.34% expense ratio, which works out to around $34 in annual fees for a $10,000 investment.
Schwab Government Money Fund — Investor Shares (SNVXX)
“Ask whether you’re seeking to maximize yield from your money market fund and therefore are comfortable with it investing in more exotic short-term asset-backed securities and commercial paper, or want to focus on a ‘risk-off’ style safety with a concentration on U.S. government-backed securities,” says Michael Ashley Schulman, chief investment officer at Running Point Capital Advisors.
For investors prioritizing the latter, a government money market fund like SNVXX is ideal. This money market fund only holds U.S. government-issued debt or repurchase agreements collateralized by Treasurys and cash, giving it a very high credit quality. However, the drawback to this higher degree of safety is a lower 7-day SEC yield of 5.1%. SNVXX also charges a 0.34% expense ratio.
[READ: What’s the Best Treasury ETF? 7 Options for Investors]
Schwab Treasury Obligations Money Fund — Investor Shares (SNOXX)
Another very safe Schwab money market fund to watch is SNOXX. This fund’s portfolio currently consists of Treasury bills alongside repurchase agreements from major financial institutions collateralized by Treasurys or cash. As such, the fund is able to achieve a very low weighted average maturity of just 37.3 days, giving it excellent liquidity and sensitivity to interest rate changes.
However, like most government money market funds, SNOXX pays a lower yield compared to its prime counterparts. The 7-day SEC yield on SNOXX currently sits at 5%. While still competitive, investors may wish to consider if the added credit risk of a prime money market fund is worth the extra 0.1% to 0.2% in yield. SNOXX also charges a 0.34% expense ratio.
Schwab U.S. Treasury Money Fund — Investor Shares (SNSXX)
“Consider what is inside your money market fund — i.e., what the money market invests in,” Schulman says. “For example, Treasury bill income is not subject to state income tax, whereas some of the higher yielding money market accounts that invest in short-term corporate securities will be, which can make a noticeable after-tax income difference for people in high tax states like California or New York.”
To mitigate this, investors can use a money market fund like SNSXX. Despite looking similar at first glance to SNOXX, this fund is slightly different. Whereas SNOXX holds Treasury bills and repurchase agreements, SNSXX only holds the former, giving it even better credit quality. The yield on this fund still remains competitive at 5.1%, and it also charges a 0.34% expense ratio.
Schwab Municipal Money Fund — Investor Shares (SWTXX)
“If paying taxes is the main concern, then you may want a municipal money market fund where the majority of income won’t be subject to federal income taxes,” Schulman says. The Schwab fund to pick for this role is SWTXX, which like the previous options also charges a 0.34% expense ratio, but otherwise differs in notable ways when it comes to tax efficiency.
Instead of holding Treasury bills or commercial paper, SWTXX holds short-term municipal bonds issued by state and local government agencies, such as the Montgomery Downtown Redevelopment Authority and the Huntsville Health Care Authority, both based in Alabama. The resulting 1.6% 7-day SEC yield is lower than the previous funds, but is exempt from federal income tax, which can be better for high-income investors.
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5 Best Charles Schwab Money Market Funds originally appeared on usnews.com
