It amazes me that millions of Canadians have billions of dollars invested in Money Market Funds (MMFs) that are earning no interest for all intents and purposes. In fact in the six months to the end of 2009, the average Canadian Money Market Fund earned just 0.02% after costs.*
The potential opportunity cost for Canadians is between $300 million and $400 million. That is because secure, higher interest savings options do exist. We know this because we use them for our clients.
So why are Canadians not selling their MMFs and finding better alternatives? Here is what I think:
- Investors are unaware that they are not earning any interest on their MMF investments.
- Inertia – it’s easier to do nothing than do something.
Advisors are not incentivized – There is a lot of work and administration and very little (or no) compensation related to moving clients into higher yielding savings vehicles. - Investors are stuck in Deferred Sales Charge funds and would pay a redemption fee to get out, thus negating the benefit of earning more interest.
None of the above reasons are acceptable in my view. If you own a money market fund, ask your advisor what you are earning on it and why you haven’t been presented with a better alternative.
* source: Globefund.com
This information is of a general nature and should not be considered professional advice. Its accuracy or completeness is not guaranteed and Queensbury Strategies Inc. assumes no responsibility or liability.
