Skip to main content

Is a Money Market Fund a Good Place to Store Cash During a Recession?

 


🛡️ Is a Money Market Fund a Good Place to Store Cash During a Recession?

Let’s be real: recessions are like the financial equivalent of a zombie apocalypse — scary, slow-moving, and everything feels like it’s falling apart. But your cash? It doesn’t have to be part of the chaos.

So, where should you park your money when the markets look like a horror movie?
Enter: Money Market Funds (MMFs) — the cautious cousin of investing.





💡 Quick Refresher: What Is a Money Market Fund?

A Money Market Fund is a type of mutual fund that invests in super low-risk, short-term debt, such as:

  • Treasury bills

  • Commercial paper

  • Certificates of deposit

  • Government securities

They aim to:

  • Maintain a stable $1 NAV (Net Asset Value)

  • Provide modest, consistent returns

  • Offer liquidity and safety — especially during downturns

Think of it like a financial bunker: not flashy, but it protects your assets when the storm hits.

📉 What Happens to Your Investments in a Recession?

During a recession:

  • Stocks fall like dominoes

  • Bond yields fluctuate

  • Real estate slows

  • And emotions run high 🫠

But MMFs? They stay chill.

Because they invest in short-term debt with high credit ratings, they’re much less volatile. That makes them a safe harbor when other investments go south.


✅ Why MMFs Are a Good Place to Store Cash in a Recession

🛑 1. Preserve Capital Like a Boss

MMFs are designed to maintain their value. While they're not FDIC-insured, they're about as close as it gets without being a bank account.

📌 No wild swings. Just stable vibes.

💧 2. Stay Liquid, Stay Ready

You can usually withdraw your money at any time — no penalties, no games.

This makes MMFs perfect for:

  • Emergency funds

  • Business reserves

  • Opportunity money (aka “buy the dip” funds 👀)

📈 3. Earn More Than Regular Savings

While savings accounts may lag behind with 0.5–1.5%, MMFs often yield 4–5% (as of 2025) — all without locking up your funds.

💥 Better returns, same stability.


🧠 4. Outsmart Inflation

Even in a mild recession, inflation can still nibble away at your cash. MMFs help you minimize losses by giving you some yield to keep up with rising prices.

🔀 5. Easy to Move Back Into the Market

When things turn around, you’re already in the game. MMFs are offered through most brokerage platforms, so you can shift back into stocks or bonds at a moment’s notice.

📌 You’re not just safe — you’re strategically positioned.

⚠️ When MMFs Might Not Be Ideal

Like every money move, there are caveats…

  • ❌ Not FDIC-insured (though they’re tightly regulated)

  • ❌ Returns can drop if interest rates fall sharply

  • ❌ Not a growth strategy — they protect, not multiply

If your goal is big-time growth or long-term investing, MMFs are a pit stop, not the destination.


🧪 Real-Life Example: The 2020 COVID Recession

When markets tanked in early 2020:

  • S&P 500 fell 34% in a month 😵

  • Many investors moved into MMFs

  • MMFs held steady, yielding ~1–1.5% at the time

Those who moved early avoided major losses, and many used that cash to buy back in low when markets recovered.

Lesson: Cash in a MMF can be your secret weapon.

🧮 Should YOU Use an MMF in a Recession?

✅ YES, If You:

  • Want a temporary safe zone for cash

  • Are saving for short-term goals (house, tuition, emergency fund)

  • Think the market’s headed south and don’t want to lose sleep

❌ Maybe Not, If You:

  • Need FDIC insurance (in that case, try a Money Market Account instead)

  • Have a long investing horizon and can ride out the dips

  • Want higher growth potential and can handle the risk


🧭 TL;DR: MMFs = Safe, Smart, Strategic

Recession Strategy MMF Value
Capital protection ✅ Yes
Liquidity ✅ Yes
High returns ❌ No (but better than savings)
Growth investing ❌ Not ideal
Parking cash safely ✅ Absolutely

📚 Suggested Reading


Comments

Post a Comment

Popular posts from this blog

YNAB Cost: Is It Worth the Investment for Your Budget? 💳📊

Budgeting tools aren’t free… or are they? Let’s talk about whether YNAB’s price tag delivers real value for your money—or if you’re better off sticking with free options. When it comes to budgeting apps, YNAB (You Need a Budget) is like the cool kid in town. It’s smart, efficient, and has helped thousands of people break the paycheck-to-paycheck cycle . But unlike some other budgeting tools, YNAB isn’t free. So, the big question is: Is it worth the cost? Let’s break down the price, what you’re getting for your money, and whether it’s the right tool for your budget. How Much Does YNAB Cost? 💸 YNAB offers a subscription-based pricing model , and here’s the latest breakdown: Monthly Plan: $14.99/month Annual Plan: $99/year (billed annually)—that’s a savings of about $80 per year compared to the monthly option. For new users, YNAB offers a 34-day free trial —no credit card required. That gives you a full month to see if it’s a game-changer for your finances. Is It Expens...
Post a Comment
Read more

How to Build a Personal Finance Plan Using the Baskets Saving Method

Introduction Managing money without a plan is like trying to juggle with your eyes closed—it’s messy and stressful. One of the smartest ways to take control of your finances is by using the Baskets Saving Method , a simple yet powerful strategy that helps you allocate your income into different categories. This approach ensures your money is working for you, covering both needs and future goals. Let’s break down how to create a personal finance plan using this method! What is the Baskets Saving Method? The Baskets Saving Method involves dividing your income into different "baskets" (or accounts) based on specific financial goals. Instead of keeping all your money in one lump sum, you allocate it strategically to ensure financial stability and growth. Step 1: Identify Your Financial Baskets Here are some key baskets you should consider: Essentials Basket (50-60% of Income) – Covers rent/mortgage, utilities, groceries, transportation, and insurance. This ensures you...
Post a Comment
Read more

How to Create a Monthly Budget That Actually Works

  "I’ll never forget the day I realized I had no idea where my money was going. I was standing in line at the grocery store, credit card in hand, praying it wouldn’t be declined. Payday was still a week away, and my bank account balance was a terrifying $12.56. I had a good job, steady income, and yet I felt completely out of control. That’s when I decided something had to change." Sound familiar? If you’ve ever felt like your money disappears as soon as it hits your account, you’re not alone. Budgeting can feel like a chore—or worse, a restriction—but when done right, it’s the exact opposite. A budget isn’t about limiting your freedom; it’s about giving you the freedom to spend on what truly matters to you. In this post, I’ll walk you through step-by-step how I created a monthly budget that not only works but also allowed me to save for my goals and finally feel in control of my finances. Let’s dive in! Step 1: Face Your Finances (Yes, Even If It’s Scary) I’ll be hone...
Post a Comment
Read more