A money market fund is a lower-risk investment that you can make use of and often fills the need for temporary investments. These short term investment tools allow investors and traders alike to keep their money working for them even though it is at a low interest rate. Money market accounts are highly regulated to include only high quality short term investments which are controlled by the U.S. Government, U.S. Corporations, and state and local governments. The objective of a money market fund is to keep the net asset value at $1 per share. These accounts are often characterized as conservative investments, but they don’t share any government protection.
The money market fund is a mutual fund and typically invests in several different banks, such as certificates of deposits, debt or bond obligations, or U.S. Treasury securities. It is important then to consider these key points when putting together your own portfolio of mutual funds.
• Decide on the level of risk you want to take. It is probably best not to be too aggressive unless you are willing to accept a considerable risk for the potential of high returns. If you want to play it a bit safer, rather stick to conservative or moderate risk investments.
• Remember to mix it up by owning stocks, bonds and money market funds. A moderate portfolio should have about 60% invested in stock funds, 20% in bond funds, and 20% in money market funds. This mix will put you in a moderate risk position, leaning somewhat to the conservative side.
• Your stock funds should be split so that 60% goes to domestic stock funds and up to 30% to international funds. With the rest of the stock dollars you could consider investing in a mix of real estate, gold, and natural resources specialty funds to add balance to your portfolio.
• When selecting bonds, concentrate on intermediate-term high quality funds. Although there are municipal type bonds which offer federal and tax-free advantages, it is best to steer clear of them unless you are in a higher tax bracket as they generally don’t pay as high as their taxable counterparts.
• It is very important to keep money in your money market mutual funds, because these funds are low risk and flexible. In a low-interest rate environment it is wise to allocate the same to money market mutual funds as you do to bonds.
• Keep your investment costs as low as possible by looking for funds with low expense ratios. By doing this you could save thousands on sales charges and fees.
This formula for investing is really for the moderate level of risk and is not a fail proof method. Everyone has the goal of optimizing their returns by finding the right balance of high yield investments with limited risks. It is therefore very important to study the market or seek help from a professional financial advisor before you venture into the world of investing.
Comments