Archive for category Money Market
Tips For Finding The Best Money Market Rates
Posted by admin in Money Market on December 14, 2011
Many investors who want a more conservative investment that is still somewhat lucrative want the best money market rates they can find. It is tough to go through all the available choices to find a money market fund that can keep your cash safe and still provide a reasonably decent return on it. You can find many sources of information on money market rates so the careful investor can always find something that works for him.
The first place to go looking for the best money market rates is your local bank. Many banks have accounts that offer good rates with relatively small deposits. These accounts have rules about how often you can make withdrawals without penalty so be sure to read the fine print when opening an account.
Frequently these accounts are not as well advertised as other types of checking or saving accounts so it helps to be specific and ask around when you go into your local branch to set it up. Also, if your bank provides online banking, then search around for these types of accounts. Be sure to check other banks in your area for better rates.
The next best source is the Internet. You can also find information on how these markets work. However, be careful. Make sure that the funds have the proper backing such as FDIC insurance. For example, deposit accounts at FDIC insured banks are protected up to $250,000. Other types of accounts, like investments in mutual funds, are not insured at all. If the fund fails, you do not want your money to disappear along with the fund.
Also, understand that risk versus reward also applies to these markets as well. If a rate is too good to be true, then make sure you understand how the fund is making its money and what risks the fund manager is taking on. All of this information can be found in the fund’s prospectus. Read it carefully because your money depends on it. In the past, the government has bailed out or guaranteed some of these funds. This should not be taken as a guarantee that this will happen in the future. Also, understand the fee and cost structure of the fund as these can eat into that good rate.
Many sites offer to find the best money market rates available. If an investor is looking for something that is a reasonably safe investment but also one that can give good returns as well, it pays to do your shopping and to understand where you are putting your money. Read the rest of this entry »
New SEC Rules Strengthen Money Market Funds
Posted by admin in Money Market on November 14, 2011
In 2008, investors feared the collapse of money market funds. The Securities and Exchange Commission (SEC) established new regulations to help stabilize the industry. Now, concerns about the European debt crisis are putting the regulations to the test.
Money market funds invest in short-term, high-quality securities such as commercial paper, certificates of deposit and government securities. The goal is to maintain a net asset value (NAV) of $1 per share, and many investors consider these funds as safe as cash. However, during the Great Recession, some investors lost confidence in the safety of money market funds because the market in which they transact dried up. Some were close to falling below a $1 NAV- referred to as “breaking the buck.” This became a reality for the Reserve Primary Fund. The fund was crippled by losses on debt it held from Lehman Brothers when Lehman filed for bankruptcy in September 2008. The fund’s NAV dropped to $0.97 per share, which was only the second time a money market fund had ever broken the buck. Redemption requests were suspended, and the fund began liquidating. As of July 2010, about 99 percent of the fund’s assets as of the day of the bankruptcy filing have been returned to investors, and the fund is still liquidating.
Following the collapse of the Reserve Primary Fund, investors removed more than $300 billion, or about 14 percent, from taxable prime money market funds, according to the Investment Company Institute. To calm investors’ fears, the U.S. Treasury created a temporary guarantee program. There appeared to be a real threat that the money market industry would have collapsed without that federal guarantee.
Since the onset of the European crisis in 2010, news about the exposure of money market funds to banks in the region – particularly in Portugal, Ireland, Italy, Greece and Spain – have investors wondering if a repeat of 2008 is on the horizon. A reported 14 percent of money market fund holdings are issued by foreign banks, a large portion of which are in Europe. With the nationalization of banks in Ireland, unemployment of over 20 percent in Spain, and governments across the region implementing austerity plans, European banks face a tough climate. Investors’ concerns are understandable.
However, the new regulations issued by the SEC in February 2010 have helped address many of the issues that plagued money market funds in 2008. Read the rest of this entry »
Investing In Money Market Funds Is More Secure And Safe
Posted by admin in Money Market on October 14, 2011
The terms “volatility” and “safe investments” do not go hand in hand. They never did. But especially in the 21st Century stock market, stocks with a degree of volatility are riskier than ever. While you may not see any other way for your investment if there are any future plans to retire, keep in mind that it’s not uncommon for stocks of today to swing 5 and 10 points in a whole day. Case in point: Netflix, one of the safest bets in home entertainment, recently lost close to 80 points in a span of one week. In a year’s time it went from nearly $300 per share to $128. Imagine how quickly you could have lost a significant amount of money, on a stock that many analysts considered “safe.” That’s why you should consider money market funds for investing.
Money market funds are much safer forms of investment. While you will not get rich overnight, you can benefit from the reality that money market fund investments are considerably safer than what you will find in stocks and mutual funds. Slow and steady growth can really add up over time as gains compound through the years. Many people, who thought they were going to retire on stocks and mutual funds, are now faced with the reality they will need to continue working. They realized losses of significant chunks of their portfolio as the economy took a turn for the worse, and they have never found their way back to where they were.
With money market funds, you can rest easy knowing that your assets are protected and enrolled in projects and companies that exercise the safety first rule of thumb for investing. As government interest rates improve, so, too, will the return on your investment. And as long as the government is running the show, you will never realize losses.
The only problem with money market funds is that a poorly performing one can fail to keep up with the rate of inflation. But like real estate, money market funds have a cycle that they run on from times of great prosperity to lesser prosperity. With interest rates currently at an all time low, you can rest easy knowing that improvements have nowhere else to go but up.
And one more advantage of the money market fund is that it generally stays out front of bonds in a down economy. While the bond market is also struggling to pay decent returns on investment, the money market fund is giving many investors more return than they can find anywhere else. Read the rest of this entry »