| Money Market Funds |
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| Money Market = Low Short-Term Risk
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PSST ... Would you like to buy some money ... cheap?
A money market fund invests in short-term investments that pay interest.
Money market funds may invest in ...
- U.S. Treasury bills and notes
- Certificates of deposit
- Commercial paper
- Banker's acceptances
Money market funds don't invest in ...
Because these investments are very short-term and pay a fixed rate of interest, there is little risk that their prices will change a lot – so they provide a low-risk alternative for investors.
But with little risk – there's also little return. If you invested only in money market funds, your money wouldn't grow that quickly and might not even keep up with inflation – that's the tradeoff for having a low-risk investment. On the other hand, money market funds can provide a safety net for part of your nest egg, because money market investments don't lose value the way stocks and bonds can. This may be especially important during your retirement years.
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