Don't Laugh, Money Market Funds May Be the Smart Money

If you mentioned in 1999 that money market funds were in your portfolio that year, you'd get laughed out of the room. If you mentioned that this year, you might still be laughed out of the room -- but your portfolio would look a lot healthier than those of the folks who are laughing.

These funds, which offer slow but secure growth via investments in corporate and government debt, have been unloved during the recent heady years of the bull market. But thanks to a combination of rising interest rates that have pushed up the returns, and increased competition that has pushed down the fees, money market funds look to be one of the best bets this choppy, volatile market has to offer.

The average money market fund is yielding an annual rate of 6%, the highest level since April 1991, according to iMoneyNet, a savings and borrowing information service. That's almost as good as your average stock or bond fund, but it avoids exposure to the vagaries of the markets. ...