The money market consists of financial institutions that do business through lending and borrowing assets via short-term basis, usually up to less than 13 months. Money market trades include commercial paper, deposit certificates, banker’s acceptances, federal funds, treasury bills, municipal notes, repurchase agreements and short-lived mortgages. Because of the high liquidity and short maturity nature of the money market, it is considered as a safe place for an investment.
This is not advisable as a long term investment because money market, in the first place, only operates in short term conditions thus making the rates very variable. Although returns are steady, it’s not that big compared to other investments. Also, due to this short-term nature of money market, inflation gets a great impact on your rate of returns.
Money Market Loans
Considering that it is composed of a wide variety of financial instruments, offering loans from a money market can absolutely be taken. Know that loans out of your retirement plans should be your last resort, so if you need immediate or temporary source of capital, aside from hardship loans and annuity loans, then money market loans will be one better option.
Money Market Funds
Also known as money market mutual fund, a money market fund is a type of mutual fund that is open-ended and invests in short-term securities. To make it easier to understand, it is a mutual fund with operating conditions the same as that of money market (short-term and high liquidity).
With it comes to your fund investments, always go for the best. Look for online discount brokers and firms that offer top money market funds. With them your investment is more secured and greater rate of returns can be expected. Some of these companies are Scottrade, Fidelity, E Trade, TD Ameritrade and Vanguard.
Mutual Fund Loans
The value of mutual funds, like money market’s rates, are very variable. This is because its value entirely depends on the current market scenario. When your portfolio is performing well, it is really not a great idea to take out money from your mutual funds. Yes, no matter how we plan the financial aspects of our lives, unexpected events happen crippling our financial stability and so we think of loans. But considering the points that I have earlier discussed, mutual fund loans is a big no no.
Money Market IRA
By definition, money market IRA is an IRA account (typically Traditional IRA or Roth IRA) whose funds are invested in money market. This may also be an IRA whose investments are made with money market mutual funds. IRA’s in money market are very secure because the FDIC insures the account holders against losses, that means the federal government guarantees your funds in case the banks fail.
Money Market Investing
As an overall assessment, investments involving money markets is safe, secure and liquid. In any investment there will always be advantages and disadvantages. In exchange for the not so big profits you get steady returns, safe and secure investments, and optimum liquidity.
As a tip, be very careful with your investment decisions. Teaming up with a tax advisor or financial consultant is highly recommended.