Money market fund returns now average more than 4 percent, for large funds sampled by Peter G. Crane, the president of Crane Data in Westborough, Massachusetts. Major companies such as Vanguard, Fidelity, Schwab, and T. Rowe Price offer such funds. Their yields have risen rapidly from near zero over the past year, following the lead of the Federal Reserve, and they will most likely rise closer to 5 percent if the Fed continues to raise interest rates, as it has indicated it intends to do.
Some high-yield savings accounts — which contain government guarantees, unlike the higher-yielding money market funds — are now offering interest rates above 3 percent, according to Bankrate.com. Bank CDs with maturities of a year or more are starting to yield returns above 4 percent. Two-year Treasury bills offer a yield of more than 4 percent, and Treasury inflation, or I-bonds, pay 6.89 percent.
In short, at the beginning of 2022, short-term investments offered almost nothing attractive. Now there’s a wide range of options with relatively nice returns, though none look particularly good with inflation still at 6.5 percent a year, as the latest numbers show.
Long-term market returns
When you can afford to invest for decades to come, the case for both stocks and bonds is compelling.
For the 25 years through December, the S&P 500 returned 7.64 percent year over year, including dividends, according to data compiled by Howard Silverblatt, senior index analyst for S&P Dow Jones Indices. That means that in nine or 10 years your investment would have doubled over and over again, outpacing inflation in most years.
Bonds haven’t delivered returns of that caliber over the long run, but they’ve been pretty good nonetheless — with returns of more than 6 percent annualized for diversified bond portfolios, based on Vanguard data.
But these gaudy long-term returns include some terrible years, and 2022 was one of them. If you had to convert stocks and bonds into cash, you probably incurred huge losses.
