Mutual Funds: Money Markets
Some things will never be considered sexy, even though they serve a perfectly useful role in our society: Neck braces, car batteries, C-Span. You can add money market funds to that list. (A note to thrill seekers: There will be no promises of huge market gains that create newly minted millionaires, so try to stay awake as you read on.)
Money market funds are a variation on a savings account. The good news is that these funds are virtually risk-free -- you'll only gain low to mid-single-digit returns, but you won't lose money. Plus, they typically allow you to write checks drawing from the money in your account for no charge. The bad news is you don't get to brag about your money market fund's returns to your friends who own a biotechnology fund that just doubled during the past six months (although, if your friend's biotech fund plunges 50%, you may have bragging rights.)
Money market funds invest your money in secure, short-term corporate and government debt such as 13-week Treasury bills and certificates of deposit, or CDs. What do you get in returns? Well, you get your money back for starters, plus whatever interest is earned from the fund's relatively short-term investments.
So, money market funds may make sense for investors who think the stock market won't match the modest returns these funds offer over a certain time period, although trying to time the market isn't necessarily the best strategy. These funds are a natural fit for older investors who just want to make sure they can preserve their nest egg, while returning modest gains. They also are a safe place to sock away some cash that you plan on using in a few months, say, for a mortgage. Further, some financial advisers suggest keeping a small portion of their holdings -- say, less than 15% -- in a money market fund.Investors can opt for either a tax-free or taxable money market fund. It sounds like a no-brainer, but there are other differences to consider. Taxable funds typically invest in debt offerings that provide a better rate of return, or yield, than tax-free funds. But, you have to pay taxes on any earnings you make on the investments. Tax-free funds, meanwhile, invest in short-term municipal bonds and other debt offerings that are typically exempt from federal and sometimes state taxes.
More Unbridled UnsexinessSince money market funds are a sizable part of the mutual funds arena, TheStreet.com keeps abreast of the latest developments. To find out more, check out this unsexy but perfectly useful article: Where Can I Park My Money for Nine Months?
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV