With today’s economic conditions, many people are looking for different ways to invest their money. If you have always been a stock market person, chances are you are checking out other ideas. If you have always thought about real estate, you might be contemplating taking advantage of the low prices and foreclosures. If you are looking for different options, you might want to consider money market investing, as it has some advantages.
What exactly is money market investing? Money market investing is using your funds in short-term debt investments. Money market funds are categorized according to the type of debt they purchase; government money market funds, or money funds, invest in US government securities; corporate, or nongovernment money funds, invest in businesses; tax-free money market investing involves money funds that invest in municipal interests.
Unlike a money market account, which is really just a bank savings account that tends to yield a higher interest rate than a typical savings plan. It has limitations placed on it, which are essentially limitations on the number of transactions – withdrawals — you can make. Because they are really just modified bank accounts, they fall under the FDIC protection. Money market funds carry no such protection. They are not FDIC-insured. Risk is limited, however, by the SEC regulation that requires that the average maturity of funds in a money market fund to mature in ninety or fewer days.
Because the term is so short for money market investing, the percent yield quote is usually identified as a seven-day yield rather than the typical annual percentage yield (APY). The advantages of money market investing include:
• They are short term.
• They are considered relatively safe.
• They typically offer the possibility of higher returns than a CD.
• They may offer tax advantages if you purchase tax-free funds.
• They are accessible to smaller, less-experienced investors.
• They can provide ease of accessibility if necessary.
• They can serve as temporary holding places for money while you consider other investment options.
• They are readily available by brokers, at mutual fund companies, and at some banks.
The risks associated with money market investing include:
• The possibility of losing money exists even though it is less than other forms of investing.
• The lack of insurance from the FDIC or any other government agency.
• The variable nature of the rates. Your rate can go up or down from month to month.
• The longer you invest in money market funds, the more that inflation can eat away at your profits, since long term returns are less than long term returns on investments that carry greater risk.
If you are interested in moving your investment money to a relatively safe environment that has a bit better rate than a savings account, you may want to consider short term money market investing. Consult your investment professional for so good advice for our particular situation and goals.