High yields and a volatile stock market have investors piling into money market mutual funds. Holdings were near a record high of $4.8 trillion in the week ended Jan. 18, according to the Investment Company Institute . That's down from the high of $4.814 trillion in total net assets the week ended Jan. 4 and above the prior peak of $4.79 trillion reached during the Covid lockdown of May 2020. Yet for retail funds, inflows are still climbing — the week ended Jan. 18 saw a $4.97 billion increase into retail money market funds, to bring net assets to a total of $1.74 trillion. "We have seen a lot of money coming into retail money market mutual funds since the Fed started tightening monetary policy," said Shelly Antoniewicz, ICI's senior director of industry and financial analysis. In fact, about $300 billion has flowed into retail money market funds since the end of February 2022, right before the Federal Reserve started ramping up interest rates, she said. As the central bank began hiking interest rates, the overnight federal funds rate followed. The Fed's last hike in December brought the rate to a targeted range between 4.25% and 4.5%. Another quarter point increase is expected when the central bank meets next week. Retail assets make up about a third of the total money market fund pie, according to Peter Crane, founder of Crane Data, a firm that tracks money markets. The average yield on his Crane 100 list of the 100 largest taxable money funds is 4.13% and Crane expects soon after the next Fed rate hike, some money market funds will start breaking 5%. The poor performance of both the stock and bond markets in 2022 also made the funds more appealing, Antoniewicz noted. Another rocky year for stocks is expected, at least in the first half . A large majority of Americans may decide to just sit it out, according to the Allianz Life Quarterly Market Perceptions Study for the fourth quarter of 2022. Some 64% of those polled said they would rather have their money sit in cash than endure market swings, the study found. "Like any other investment, they are good for the right reason; a stable place for the assets one wishes to preserve," financial advisor Mitch Goldberg, president of ClientFirst Strategy, said of money market funds. For those on Wall Street, the near-record net assets of money market mutual funds means more cash to put back into stocks and potentially fuel a rally. "But with money market yields higher than the dividend yield of the S & P 500 , cautious investors are asking themselves, 'why not keep my money in this while I wait to see what happens with interest rates, inflation and the economy?'" Goldberg said. A strategic decision Deciding how much to allocate to a money market mutual fund is a highly personal decision, and should be a strategic one, said Christine Benz, director of personal finance at Morningstar. "Even as yields move up, cash is still a losing proposition on an inflation-adjusted basis," she said. "You have to be careful not to over-allocate to cash." Therefore, think of it as a short-term investment for your money. Look at your anticipated spending and use that to drive your cash holdings, Benz suggested. For those who are still working, the standard emergency savings should total about three to six months of living expenses. Those who are retired should hold a larger cash savings, around one to two years' worth of expenses, she said. One thing to keep in mind is that a money market fund is not FDIC-insured, while a money market account at a bank is insured. But funds typically earn more interest, and both are liquid, meaning they're easy to get into and out of. Be aware of fees You will also have to be aware of fees — at the same time yields are ticking up, so are funds' expenses. When interest rates were near zero, during the Covid-19 pandemic, many financial institutions were cutting their fees. Those days are now over. For instance, in 2021, the latest data available, the average expense ratio for a money market fund was 12 basis points, ICI's Antoniewicz said, or 0.12 point. A basis point is 1/100th of a percent. In 2019, a more "normal" year, the average was 25 basis points , she said. That said, the yield on the product already takes into account the fees, Crane said. "The yield tells you everything you need to know about anything," he said. "If your money market fund yield is lagging, you probably have a high expense money fund." Look for a 'Goldilocks' scenario Low-expense-ratio funds with higher yields tend to provide the same amount of risk as lower-yielding, higher-expense funds, Morningstar's Benz said. However, be cautious of a fund that has a high-expense ratio but for some reason is managing to deliver a higher yield, she warned. "That can be a flag that there can be a risk going on within that fund," she said. While considered a relatively safe investment vehicle, there were issues during the 2008 financial crisis with the Reserve Primary Fund . That massive money market fund held Lehman Brothers bonds. When Lehman collapsed, institutional investors yanked billions — sending the share price to 97 cents in what's known as "breaking the buck." The net asset value of money market funds is normally maintained at $1 share. When looking at what firms did during the 2008 crisis, stronger players that were diversified in their offerings were quietly adding to the funds in order to keep their net assets positive, Benz said. "You are probably better off going with a money market fund from a firm that has a broad suite of other investment products," she said. Crane's advice is to sinply stick with funds that have yields that aren't too high and aren't too low. "Be safely within the herd, toward the middle," he said. Also think about what you are going to do with the money and how quickly you have to access it. For instance, it may be worth giving up a quarter percentage point if it is with the same institution as your other bank accounts so that transfers can be quick and easy, Crane said. What's next As far as inflows are concerned, the mutual fund market is hitting a weak seasonal period now through tax day on April 15, Crane said. "Don't be surprised if money fund assets went down," he said. However, high yields may keep investors interested. Those yields should stick around for a while, ICI's Antoniewicz said. Fed officials have indicated they expect to keep rates higher through the year, with no reductions until 2024. "Usually when rates are moving up and level up at a relatively decent interest rate, which it appears that is where we are going, they will be attractive to retail investors," she said.