Are money market funds as famous today as in the past?

There was a time when money market funds were a safe place to invest and anticipate high returns. But all that has changed. In recent times, customers have started losing money instead of gaining any. Some people who have invested a dollar for every share are now getting just 97 cents, like the case of the reserve primary fund.

Such occurrences are rare and this is largely due to the global economic crisis. The situation with the primary fund did not happen all of a sudden. It was preceded by the fall of Lehman brothers and Merrill lynch. There was also the bail out of the mortgage companies Fannie Mae and Freddie Mac and also the American insurance group, one of the insurance giants of this country. It has now come to dawn up on consumers that they need to be their own financial planners and not depend on their fund manager or stock broker. It is after all your hard earned money.

Money market funds and deposit accounts are two different things. The money market funds are mutual funds that only invest in securities. The primary fund got into a mess because it invested in Lehman brothers.

A money market deposit account is something where an account is insured in your name up to a limit of $250000. This is an insurance that is given by the FDIC or federal deposit insurance corporation like those given out to checking, savings accounts and certificates of deposit. In other words, a money market deposit account is a lot safer than a money market fund.

But if you still wish to invest in a fund due to the higher potential returns, you need to protect yourself from the upheavals of the market. You can do this by ensuring that your account is with a large diversified money management company that has the resources to return your money in case the fund runs into trouble. When it comes to money market funds, the larger the better is the mantra. Apart from that, you can also secure yourself by investing in a fund that invests only in government securities or treasury bills. This way you will not lose your money unless the country itself goes bankrupt. This is also one of those times when investing in a high returns fund is a sure fire way of getting yourself into trouble. The risk is very high in the market already, if you invest in a high risk fund; you are surely not even going to break even with your investment.