TD Ameritrade: Money Fund Basics
TD Ameritrade posted a "Ticker Tape" investing basics article discussing, "Are Money Market Funds Right for You? What You Need to Know." They tell us, "When it comes to your short-term savings, you have choices. And as interest rates appear to have started a slow climb from zero, where they spent most of the last decade, many bank checking and savings accounts have yet to budge. You might, then, be on the lookout for an investment that: Can provide relatively high returns (vs. bank accounts) with minimal price volatility; and, Combines sophisticated institutional assets into a simple product. In short, an investment product that is similar to a cash savings account but potentially with a higher yield along with higher risks. Enter money market funds." They ask, "What Is a Money Market Fund?" and explain, "Money market funds are essentially mutual funds that invest in money market instruments: U.S. Treasuries, municipal securities, certificates of deposit (CDs), commercial paper, repurchase agreements, and bankers’ acceptances. Note that a money market 'fund' is not the same as a money market 'account.' A money market fund is a type of mutual fund that invests in money market instruments; hence, it's a product that you must directly buy or sell." The piece adds, "Like every investment product, money market funds -- or maybe it's better to think of them as 'money market mutual funds' -- have their advantages and disadvantages.... The Pros: Money market mutual funds are designed to provide steady interest income with very low risk.... Money market funds can be relatively cheap to own and don't impose withdrawal fees.... Cons: Although money market mutual funds are considered safe investments, it is possible to lose money by investing in Money Market Funds. They aren't FDIC-insured, nor are they guaranteed by the U.S. government or government agency. They are also not deposits or obligations of or guaranteed by any bank, unlike money market accounts."
