Money Market Investing

By Stock Research Pro • March 25th, 2011

Money market investing refers to investing in financial instruments that offer short-term maturities, high liquidity and relatively low risk. For the most part, money market investments can be bought or sold any time and can serve as temporary holding accounts for cash. Money market investing instruments include such things as certificates of deposit (CDs), U.S. treasury issues, short-term commercial paper, bankers acceptances, and municipal notes. Many investors will hold cash in money market accounts when they are between investments.

Benefits of Money Market Investing

The primary benefit of money market investing is the relatively safety of the principle. While it is possible to lose money through money market investing, it is highly unlikely. Investors who are looking for a relatively safe investment option that provides a decent return should consider money market funds. Often, these investments come with check-writing privileges and dividend earnings. Money market investments will return, on average, between two and five percent annually and are considered open-ended investments (meaning investors can add and withdraw funds from the account any time they need to without paying a penalty).

Risks of Money Market Investing

The main risk in money market investing is usually seen as the potential loss of purchasing power. Because these instruments offer a lower rate of return than other types of investments, the investor’s purchasing power can be eroded by rising inflation. While these investments are typically seen as safe, it is worth noting that they are usually not insured by the FDIC.

Other Considerations

Money market investments usually call for higher preliminary deposits than bank savings accounts and other highly liquid investment options. Typically, the initial deposit requirement is $1,000 but may be $5,000 or more. There may also be a minimum balance that must be maintained throughout the life of the account. Of course, not all money market investments are the same, so investors should be sure to compare their investment options. While past performance does not guarantee future return, reviewing that historical information can help to understand investment potential.


The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.

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