Imagine treasuries and prime money market funds as people walking down Wall Street. They'd be the ones wearing bubble wrap, vigorously applying hand sanitizer and watching out for errant shadows as they take a stroll. They are both very safe investments in the pantheon of investment products. The returns on such investments are predictable as are the time frame for payout. And as such, they often have the least reward.
When people refer to treasuries they are usually talking about U.S. Treasury Bills. These are debt securities bought by investors looking to lend the U.S. government cash. The government thanks investors for the money by providing reliable interest on the payment, which it delivers after a certain fixed period. Treasuries are considered the safest investment vehicles on the market because they are backed by the U.S. government, which has a default risk of zero.
Prime Money Market
Prime money markets refer to an investment fund, as opposed to just a single investment option. This fund focuses on collecting the safest securities on the market. For instance, the Vanguard Prime Money Market fund invests in U.S. Treasury Bills and other government securities as well as what is known as safe commercial paper, or short-term promissory notes issued by companies. Other items a fund might include are certificates of deposits offered by banks and asset-backed securities. These funds have a net asset value of $1, and you can expect earnings to be in line with the ups and downs of the interest-rate market.
Investors with short-term savings goals often buy these items. For instance, if you made money on investments for a college fund than you likely do not want to lose it. These two types of securities offer the safest way to retain earnings while still allowing your money to grow. However, don't expect much return in today's investing climate. The Prime Market Fund offered by JPMorgan, the largest fund of its kind, reported a return of .02 percent for the 12-month period ending in mid-March 2013.
Returns of this size can present a problem for investors. According to a Bankrate report, the fees for managing a fund are sometimes larger than the earnings coming into the fund. This is particularly the case in funds that deal exclusively in U.S. Treasury Bills, for example Fidelity’s U.S. Treasury Money Market Fund. They have stopped accepting new investors as the expense ratio is .48 percent, while bills are returning a smaller .2 percent over a seven-day period. Prime money market funds do not have as much of a problem since they are allowed to invest in items such as commercial paper, which provides a higher rate or return.
- Bankrate Inc.: Rough Times for Money Market Funds
- J.P. Morgan Funds: JPMorgan Prime Money Market Fund
- Yahoo! Finance: How U.S. Treasuries Bonds Work
- SEC. "Supplement to the Fidelity Government Money Market Fund, Fidelity Money Market Fund, Fidelity Treasury Money Market Fund, and Fidelity Treasury Only Money Market Fund." Accessed Oct. 10, 2020.
- ICI. "Re: IOSeO Money Market Fund Systemic Risk Analysis and Reform Options," Page 5. Accessed Oct. 10, 2020.
- U.S. Dept. of Treasury. "Report of the President’s Working Group on Financial Markets," Page 12. Accessed Oct. 10, 2020.
- SEC. "Disclosure of Mutual Fund Performance and Portfolio Managers," Page 5. Accessed Oct. 10, 2020.
- U.S. Dept. of Treasury. "Report of the President’s Working Group on Financial Markets," Page 15. Accessed Oct. 10, 2020.
- SEC. "Removal of Certain References to Credit Ratings and Amendment to the Issuer Diversification Requirement in the Money Market Fund Rule," Page 7. Accessed Oct. 10, 2020.
Based in Mattapoisett, Mass., Jason Perez-Dormitzer has been an award-winning journalist and editor since 1995. His work has appeared in "American Banker," "Taunton Daily Gazette," "The Standard-Times," "Brown (University) Medicine" and the "Providence Business Journal," among others. He holds a B.A. in journalism from Rutgers University.