After the erratic growth over the past two years, the stock market has taken a major downturn. Investors and analysts are nervous, as interest rates and oil prices continue to climb and negatively affect the market.
The money market fund is now a safe, lucrative place for investors to store their funds until the market sorts itself out. This article discusses the benefits of money market funds to both seasoned and small investors.
It’s hurricane season on WallStreet. As interest rates and oil prices go up, up, up, the Dow Jones and NASDAQ averages go down, down, down. Where can the average investor go to weather the storm?
One safe harbor is the money market mutual fund. Money market funds offer stable per-share prices, liquidity and allow investors to benefit from a climate of rising interest rates.
Like most mutual funds, money market funds pool investor resources in order to purchase large quantities of assets, up-front fees to the fund; the fund makes its profit by levying management fees. The difference between the interest the fund earns less the fees is distributed to the shareholders.
Currently, money market funds offer annual percentage rates between 3.85% and 4.80%, which is substantially better than offered on most passbook savings accounts. Interest is calculated and paid monthly, and investors can either take the interest payments in cash or reinvest it in additional shares in the fund.
Unlike stock or bond mutual funds, the share price of a money market fund never changes. Every share is worh $1.00, and every dollar invested retains its value.
The stability makes the money market fund very ideal for conservative investors.