In most 401(k) and 403(b) plans, money market and short-term bond funds are among the most popular investment choices. That is especially true recently, when fear and panic among investors sent many scrambling for something more stable than the stock market. With the smoke cleared from last year's financial crisis, retirement plan investors are noticing something they always knew but had not cared about last year: you will make nothing (or close to nothing) on money market and short-term bond funds.

Are those funds really safer? That depends on how you measure safety. If having too little money to live on in retirement would make you feel uneasy, then you should be uneasy about having a money market fund in your retirement plan. With rates close to zero, you'll never see your account grow to the point where it will give you a comfortable retirement.

There is a cost to everything in life; you get what you pay for. With a money market fund, what are your getting? You're getting stability and liquidity - you can pull your money out whenever you wish. And what does it cost? You get little or no return - and that cumulative "cost" over time can be enormous. Unless you're on the edge of retirement, you're not going to be drawing money out of your 401(k), so accepting the cost of a low return means you're paying for something - liquidity - that you are not getting.

Keep your eyes on the prize: a healthy account balance in retirement. You'll only get there if you have robust investment returns. And when it comes to returns over time, cash is trash.


(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).