T. Rowe Price: 4 Reasons Money Funds
T. Rowe Price gives us, "4 Reasons to Save in a Money Market Fund." The article explains, "Money market funds may provide potentially higher growth potential than a bank savings account and more flexibility than certificates of deposit (CDs). If you have an investment goal, you likely know when you're going to need the money and how long you'll need it to last. If you're saving for a goal that falls within the next three to five years, saving in a lower-risk investment such as a money market fund, bank savings account, or CD may make sense for you. Money market funds don't have the growth potential of stock or bond funds; however, they are a more stable investment and can be especially useful for immediate to short-term savings goals that you don't want impacted by market volatility." After explaining, "`What is a money market fund?" the piece discusses, "Why do people invest in money market funds?" The reasons include: "1. Money market funds are useful for short-term goals such as saving for a vacation, a wedding, or a down payment for a house. In these cases, it may be more important that your savings hold their value over the shorter time period. 2. Maintaining an emergency reserve. Having money outside of retirement accounts can act as a personal safety net to get through financial hurdles, such as a period of unemployment or an unbudgeted large expense. We recommend an amount that could cover three to six months of expenses. The accessibility of money market funds makes them a good option. 3. Cover larger, regular expenses. For example, many people pay property taxes, insurance premiums, or other larger expenses on an annual or semi-annual basis using the checkwriting feature. An account earmarked for this purpose means there's no surprise when those bills come due. 4. A money market fund may also be used as a place to park assets, such as an IRA rollover, or transfer while trying to decide how to invest those funds for the long term." Finally, T. Rowe Price asks, "How safe are money market funds?" They reply, "There is little risk associated with money market funds. The Securities and Exchange Commission (SEC) mandates that only the highest credit rated securities are available in money market funds. While money market funds are considered to be one of the safest investments, they have dipped below the target share value of $1 (known as 'breaking the buck') during a few volatile markets or due to changes in inflation and interest rates, but have quickly recovered."
