Money Market Funds

When people look to begin making investments, they are often overwhelmed by the wide range of choices available to them. We at PaydayLoansCashAdvance have gathered the following information for you about money market funds and related investment opportunities to help make sure you make an informed decision based on what will work best for you, your money, and your long term and short term goals.

Traditional investments such as bonds, stocks, and real estate work great for many people in the long term. They are very popular routes to take when it comes to growing a portfolio. Many people use the related IRA and 401(k) to plan for retirement with a good amount of success. The difficulties arise when people look to withdraw their money. Many of these types of investments, such as bonds, have long maturity periods.

This means that if the person wants to access their own money before this maturity date, they will probably end up losing a great deal because of penalties based on early withdrawal rules and related taxes. Since locking away all their money for such a long time makes many people nervous, money market funds are a popular investing option for people who want to leave at least some of their money in a more open ended account that is easier to access. They are also good for people who want to make short term gains on their chosen investment opportunities.

What is a money market account?
Money market funds, or money market mutual funds, are short term investments made in high quality income securities. Typically the net asset value will not deviate from the $1 per share price. Occasionally, however, it will dip below this amount, and this is known as “breaking the buck.”

Those who invest in money market accounts will have a maturity period on their investment, which is often ninety days. Investors hope that and the end of this predetermined investment period they will get back the money they invested with a little bit of interest.

These investments are regulated by the U.S. Securities and Exchange Commission, or the SEC, to help limit the potential for risk and loss. This does not mean that losses cannot happen, but they are very rare with this type of investment. The money market funds are usually invested in areas such as certificates of deposits (CDs), government securities, and similar low risk investment options.

What are the advantages to investing in a money market fund?
Investing in a money market fund has many advantages, making them one of the more popular investment options. For example, many people point to the great flexibility that they offer when investors want to switch money from one fund to a different one. This is a part of the quick maturity rate they offer. When the maturity rate is only ninety days, the person does not have to wait terribly long before they can change the fund the money is going into.

Similarly, the short maturity rate also means that it is easy to access the cash. Investors do not have to worry as much about early withdraw penalties and extra taxes because they never have to wait all that long for the maturity date in the first place. Also, since the interest to be paid to the investor is calculated on a daily basis and paid on a monthly basis, which means that even early withdraw rarely disrupts the investment earnings. If an investor needs to suddenly withdraw their money even before the month or term expires, there are still no early withdrawal penalties and the money earned on the account can be paid instantly on the day you decide to withdrawal.

The regulations by the SEC also help to keep the investment secure. The funds are not affected by the general market except in cases of an enormous change. Since this happens so rarely, the money invested is rarely lost. This is good for people who have a low tolerance for risk and do not do well watching the regular market fluctuations.

What are the disadvantages of money market funds?
Since no investment is perfect, there are some disadvantages to investing in a money market account, but the risk is not as prevalent as it is with other accounts. For example, money market funds are not as vulnerable to the continual rises and falls of the stock market, but a person who holds a money market account for an extended period of time could find themselves negatively affected by inflation.

Investors should also remember that money market accounts do not offer fixed rates of growth. The interest rate will change daily and can go up or down. This means that one day you could get decent interest, the next day nothing. There is also no guarantee concerning the share price of $1 per share. Although this is where fund managers seek to keep the price, there is no promise.

What should investors keep in mind?
When deciding whether or not to invest in a money market account, those interested in investing should remember that money market funds are excellent for those who are looking for secure investments, but they are not good for delivering high returns. Compared to other investments, the returns are often quite low. On the other hand, it is an opportunity to grow a portfolio without worrying about withdrawal penalties and having the freedom and flexibility to change funds and investment preferences regularly. Those looking for short term gains often get the most out of money market accounts.

Before making any investment, you should carefully examine all your options, as well as long term goals and what you hope to accomplish with your portfolio. If you would like to keep at least some money open to change and easy to access, investing at least a portion in a money market fund may be for you. We hope that this information has been helpful to you as you investigate your options and begin your investment journey.

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