For those who do not want to take risk in the equity market and yet want to avail the benefits of stock market returns investing in money market funds is a good idea. Money market funds work in a very explicit way preserving your capital and yield a modest return. Their goal is to maintain a net asset value (NAV) of exactly $ . Fund owners advertise it as high yield bank accounts.
The only disadvantage is money market funds do not have any insurance against loss.
Indexes that are subset of original indexes
Things to consider before investing in money market funds:
1)These funds are for short period of time usually 60 days, always less than 180 days. They do not witness high price fluctuation.
2)You can track your returns daily as Money Market Funds declare dividends daily, though they are only paid out monthly. If you wish to withdraw or cash in totally in middle of the month, you'll receive the cumulative declared dividends.
Money market funds are also known as principal stability funds that limit ones exposure to losses due to credit, market, and liquidity risks. Money market funds are regulated by the . Securities and Exchange Commission's (SEC) Investment Company Act of 1940. Eligible money market securities include commercial paper, repurchase agreements, short-term bonds or other money funds. Money market securities should be highly liquid, and have a stable value. For investing in money market funds one needs to have a money market account and this can be obtained from banks easily.
Even money market funds are dealt by professionals so the dividend that you get paid is after they have calculated for their own survival as a company in the market. It is comparatively less than what the banks will pay you.
Should you invest in money market funds? That answer, of course, if entirely up to you. Keep in mind that you will certainly never become wealthy investing in this avenue. The best choice, of course, is to become financially educated so that you can take advantage of the really lucrative stocks on the market and achieve financial freedom.
Of course, not everybody has the time or patience for this. Therefore, if you absolutely feel you can't take the time to become financially educated and learn about finances and how to make money with the market, then investing in money market funds may be the choice for you.
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