Candlestick Trading Blog
April 4, 2008
Money Market Mutual Funds
Money market mutual funds are a type of mutual fund that invests in short-term debt securities of agencies of the U.S. Government, banks and corporation, and U.S. Treasury Bills. These investment funds are fixed at $1.00 per share and only the yield fluctuates. They invest money in money market securities that typically have a maturity date of 270 days or less and they report seven-day average income yields because the securities in the fund change so frequently. The average maturity of securities held in an SEC-registered fund must be 90 days or less, although it can have a much shorter average maturity. They are designed to offer features that are best suited to fit the needs of smaller investors whereas minimum initial investments range from $500 to $5,000. Investment advisors will often sell money market mutual funds and they have their own proprietary funds that offer money market investment opportunities. You can also purchase these types of funds directly from a brokerage firm or from a mutual fund firm similar as you would purchase stock. Money market mutual funds should not be confused with money market accounts. Money market accounts are interest earning savings accounts offered by the FDIC (Federal Deposit Insurance Corporation). Not to be confused with money market mutual funds which are sponsored by fund companies and carry no guarantee of principal. There is some caution to be had when investing in money market mutual funds. Some of which are briefly described below. 1) Investment Objective – If you are looking to begin retirement investing, this is not the fund for you. If you are looking to practice long term investing at all, it is not the fund for you. The return on investment generated by this type of fund is typically only slightly above the rate of inflation and is not sufficient for a suitable retirement investment. They should instead be used as a portfolio management tool to place or to “stash” money temporarily. 2) Expense Ratio – If you have a higher than average expense ratio, it will eat into the returns produced by money market mutual funds. 3) Investment Risk – Many investors see this type of fund as risk free. Please remember that no investment is risk free. Stick to funds that are sponsored by the prime investment companies in the industry that have a huge stake in maintaining a net asset value of $1.00 per share. Money market mutual funds offer a convenient way to “stash” cash reserves when an investor is not quite ready to make an investment or is anticipating a near-term outlay for a non-investment purpose. Investment brokers will often use these types of funds to provide cash management services to their clients. They can actually earn the client extra percentage points in annual returns above those earned by other possible investments, by placing a client’s dormant cash into money market mutual funds. These types of funds are very unique in nature and therefore must be studied very closely. Whether you decide to use this type of fund as an investment vehicle or as a temporary place to “stash some cash” make sure that you know as much as you possibly can about the fund to ensure that you avoid making investing mistakes. Online Stock Market Reviews presented live via the internet by Stephen Bigalow |
|
 |
|
 |
|
 |
|
 |
------------------------------------------------------------------- -
0 Comments:
Post a Comment
<< Blog Home