Why invest in a money market fund?

Great Answer

Professionally Researched. (What's this?)

People invest in money market funds in order to make earnings on relatively small amounts of money beyond what they would typically make in a savings account but without the exposure to risk of other investment strategies.

Features

Money market funds provide a secure opportunity for small-time investors thanks to the Securities and Exchange Commission requirements that 95 percent of money market funds be invested in "first-tier" securities such as U.S. Treasury issues and securities with the highest credit ratings.

Identification

A money market fund pools together the resources of shareholders to invest in a portfolio of short-term, low-risk securities and other items that return a net asset value of roughly $1 per share.

Time Frame

Investments made in a money market fund are typically short-term investments of one year or less.

Benefits

Since money market fund portfolios are made of short-term investments, they provide increased liquidity over long-term investment strategies offering the potential for larger earnings.

Considerations

There are tax-free money market funds that free investors of having to pay federal and (in many cases) state taxes on earnings. These are typically instruments such as bonds that are used by state and local governments to pay for short-term loans.

Source:

T. Rowe Price: Benefits of Money Market Funds

Investopedia.com: Money Market Funds

Investopedia.com Money Market Mutual Funds: A Better Savings Account

Resource:

SmartMoney.com: Boost Your Returns: Bonds

More Questions. Additional questions in this category.

ANSWERBAG BUZZ