What are the pros and cons of money market funds?

If there is a low-risk investment in the financial markets, it would be the money market funds. Expert investors believe that any type of money market fund has very low risk-reward ratio. Unlike stocks and the foreign exchange market, it does not require a high capital investment. Moreover, it does not need technical tools to take advantage of its high profit potential. Typically, money market funds are short-term, but they offer guaranteed returns. They are not issued by the Fed like other investments but then again, risks are so low that they are preferred by many investors.

The money market are usually used to invest on CD’s or certificate of deposits, government securities and all the other forms of low risk investments with securities that are highly liquid. The net value for this type of investment is nailed to a rate which is $1 per share. While the rate remains constant, the profit varies – it may go up or go down.  When the market goes to a poor direction, the cost could go down to less than a dollar. This condition is typically referred to as “breaking the buck” but this seldom happens. Hence, very few people actually lose when they invest in money market funds.

Before you put on your first dollar investment with a money market fund, it would be recommended that you are well-equipped with how it works; even to the smallest details. In case there are some things about it that are not clear to you, you should always ask.  Ask and never stop until things are clear. Check on shareholders reports particularly the recent ones so you can have a bit of a picture how the company is doing.

Like all the other investment types, there are advantages and disadvantages to money market funds. Here pros of this type of investment:

Money market funds are government-supported thus making it a low-risk investment. This alone can make any investor feel a little more at ease about their money. Keep in mind that when it comes to financial markets, a high investment is coupled with a high return. In business, it is said that the bigger your capital is, the bigger the profit is. This is so true with money market funds.  Another thing which makes money market funds a good option for a lot of investors is that they are given the liberty to withdraw their money when they wish to. Unlike CD’s where a depositor is penalized when he takes money out of the fund before its maturity date, with money market fund, you can do it less the worries of charges. The only drawback seen in the money market fund is the fluctuating market which can affect the return of investment.

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