Comparing Money-Market Funds to Growth/Growth-and Income Funds
Many investors see money market funds as an alternative to bank accounts. For one thing, financiers and investors would like to see a highly liquid platform for their investment especially when they do not have deep funds for their undertakings. Because of the liquidity of assets in money market funds, the flow of cash inward and outward the money market fund is dynamic.
The great thing about money market funds is that it is fully secured by the Federal Deposit Insurance Corporation (FDIC). Being insured, the US government will have to pay for any financial liability that a specific money market fund incurred whether to its business partners or to its customers. This financial back-up, by no less than the US government, attracts investors because it lessens the risk of investing.
Basically, money-market funds have interest slightly higher than passbook accounts but are lower than Series EE bonds and CDs. But despite the presence of other high-interest options, money market funds are preferable because it gives the leverage to investors who want to have liquidated pools of assets. In the case of an investor who concentrated al his financial assets in a single stream and are opening other branches of investment, secured stocks and investments are not wise assets to buy because withdrawing an amount before the maturity will lead the person to pay for penalties.
On the other hand, growth funds have a higher promise of Return of Investment or ROI. The reason for this is because growth funds are interested in dealing with speculative securities. Obviously, like most deals done in the black market and other less reputable institutions, unsecured stocks are most likely to promise higher interest rate per annum in order to attract more customers. But this is a very risky venture that most investors will try to avoid if they have other streams of investments opportunities that are offered by secured companies.
With the risk that is apparent in the paradigm of a growth fund, the growth-and-income fund was conceived. This was the brainchild of someone who wants to incorporate the secured transactions that happen in a money-market fund and the high interest rates that are connected with growth funds. This is the more preferred investment of younger people and older ones who still want to take a little risk before going into retirement. Blue chip stocks are very good investments. Same with high-quality and backed-up securities by FDIC.
While the results are not the same for every investment transaction, the rule of thumb is that the safer investment is typically the one with lower ROI. Investors know for a fact that the market will make it a bit harder for them to get secured stocks with high interest and that is why those speculative investments are the ones with higher interests: because no one would want to spend money on a risky investment if not for the promise of big returns. The high interest rates are therefore a ploy to entice people into investing money on the risky venture.
Money market funds may give lower rates at the end of the day but sometimes this low but steady rate is far better than getting a high-ROI but constantly fluctuating security which is worth a hundred thousand dollars today and 50% less tomorrow. And also, the fact that money market funds provide people with more privileges such as withdrawal assets (brought about by the high liquidity), tax advantage, and check writing, money market funds are indeed a better and more lenient choice compared to locked-up investments that are non-accessible within a certain period of time agree upon by both parties.
