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Posted on 28 September 2012.
Anyone who is interested in investing in money market funds should certainly do some research and understand how this type of investment differs from other investments. A money market fund is simply a low-risk mutual fund that pays dividends that are generally reflected by short-term interest rates. Each fund should have information available, including a prospectus and shareholder information. Carefully reading this information can help the investor have a better understanding of the fund they are considering as an investment.
Many financial advisors agree that money market funds can be an important part of your investment portfolio. One of the benefits of investing in this type of fund is that money can easily be added or withdrawn whenever you want. This can be an excellent way to keep cash easily accessible while still allowing it to work for you through your fund investment.
There is no doubt that every investment has an inherent level of investment risk; however, with money market funds, this risk is very low. As a mutual fund, fund managers invest in a variety of debt securities. The fund’s assets will be used to provide short-term loans to large corporations or government entities. While these funds are not insured by the U.S. government, the Security and Exchange Commission does require that these funds only have high quality securities in their portfolio. Additionally, these securities must have an average maturity of no more than 90 days.
Money market funds offer a relatively safe investment opportunity, but it is also coupled with a lower yield. However, higher yield investments tend to have a much higher investment risk, which is not acceptable in all situations. Balancing your portfolio with low risk money market funds can be an excellent way to ensure you have a liquid investment that can be used in case of emergencies or expenses.
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