Money Market Funds

Money market funds typically invest in short-term investments and result in higher yields than checking or savings accounts

. These investments may be in the form of CDs and treasury bonds, among other tools, the selection of which depends on the fund itself.

These investments, basically because of the security the government provides, use tools that are almost risk-free and highly liquid. Many of these funds also mature in less than one year, and work with the goal of maintaining the initial investment while offering investors good returns. The various kinds of money market funds also include insured ones that have less risk and provide smaller gains, and higher-risk, higher-yield funds that aren't insured (which are offered by institutions other than banks). The most profitable funds typically come with reasonable yields, of course, at reasonable levels of risk.

Money market funds aren't the same as money market accounts, although these two investment venues are often confused with each other. Fund companies sponsor the funds, and don't guarantee your initial investment or principal. Money market accounts, on the other hand, are similar to interest-earning savings accounts FDIC-insured institutions offer, with a guarantee up to a set amount. These accounts usually result in better returns than ordinary savings accounts, although these gains are lower than what you'd get with a CD, and much less than good money funds.

If you're thinking about putting a part of your investment portfolio into one of these funds, you may find this venue profitable because of the benefits that come with this type of investment. They're comparatively safe investments that don't require a huge influx of cash at the onset, while giving you the ability to sell or buy shares at any time. Talk to your investment planner about how you can use money funds to build your nest egg.

by: Carina Smith

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