Everything you need to know about a Money Market Investment
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A money market investment is typically an account that is held by a financial institution, such as a bank, that keeps cash in short-term financial or debt obligations. This is a popular option in ensuring the maximum investment principal while also guaranteeing a modest return. These short term obligations that are contained in money market investments are typically taken from government agencies and highly rated companies.
Money market investments can potentially make, on an average, three to five percent in a year. This prudent rate of return is actually the end result of their modest strategy in these short-term debt situations. These money market investments are then placed in certificates of deposit, commercial paper, and in treasury bills as well — and moreover, these are considered to be open ended investments because investors can just withdraw and add funds from these fund accounts at any given time without the threat of being penalized.
These investments are popular for their numerous benefits, and one of these benefits include the low risk that exists to the principle. Although very unlikely to happen, it is also possible to significantly lose dollars in a money market investment. And when the interest rate declines below the inflation rate, these money market investments lose power. Moreover, these investments are typically not FDC-insured, which means to say that you might not have your money back if the company that holds your money market investments goes bankrupt.
As an additional tidbit, this type of investment requires higher initial deposits than most bank savings accounts. Roughly translated, this would usually require between $1000 up to $5000 and that is the minimum balance also that needs to be maintained. But most of these market investments sustain a dollar per share price ratio. When the interest is paid in these transactions, it is typically done with the additional shares at that same dollar per share price ratio. In addition, a money market investment provides the account with check writing services.
Even with all these established benefits, investors should still consider that not all of these investments are the same. This is primarily because various funds invest in certain securities and they also pay different rates. Therefore, it is essential to relate the different performances of these many different money market investments. And while you cannot rely on the past performance for the prospect of a future return, this can still provide for a guarantee to investors, as this is an indication of a particular money market investment’s potential. You would also need to remember that these interest rates may change often even without prior notice.
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