When Money Market Funds Increase and Decrease?
July 17th, 2010
When do money market funds increase or decrease the percentage return. Would a money market fund be a better investment than CD or guaranteed investment certificate for long term such as 3 or 4 years? How safe are they?
My Related Websites
- Earn Money Through The PayPal Money Market Fund – Easy Money
- It's All About Money | financebis
- Bonds up on purchases, stocks up on hopes | South Florida Hedge …
- Money Funds » Money Market Funds
- Mutual Funds, Guaranteed Investment Certificate or Savings Account …
- Mutual Funds, Guaranteed Investment Certificate or Savings Account?
- MUTUAL FUNDS, GUARANTEED INVESTMENT CERTIFICATE OR SAVINGS ACCOUNT?
- How Does Guaranteed Investment Certificate (GIC) Work in Canada?
- Tax Free Money Market Fund » Money Market
- Where to Invest Your Money? Make Your Money Grow
- Where Should I Stash My Rainy Day Fund? » Money Market
- investing? | Bogastvo.com – Build Your Wealth Today
- How Does Guaranteed Investment Certificate (GIC) Work in Canada?
- Mutual Funds, Investment certificate guarantees or savings account?
- Antennagate: Complaints, Returns, And Call Drops Are All Extremely Low
- Cash and Cash Equivalents | Personal Wealth Management
- Money still flowing to long-term mutual funds – The Globe and Mail …
- SSgA US Government Money Market Fund
- Tax Exempt Money Market Funds
Mail this post
Posted in 
Tags: 
Money market funds do not set their rate of return. They invest in short term debt, usually corporate IOUs (called commercial paper) with some short term government notes.
This is done on a best effort basis and the profits are passed to the money market investors. The return realized by the fund managers goes up and down with market conditions, so the fund yield varies.
Money Markets are fairly safe unless the bank goes bankrupt. During this financial crisis there have been several Money Markets that have disappeared. For a period of 3-4 years I wouldn’t recommend either because of high inflation that is looming on the horizon. I would personally put it in a few stocks or buy some ‘real’ assets with it. You might even want to consider investing in a gold mining company. Over a period of 3-4 years I would think that you would almost be guaranteed to make money because precious metals is a hedge against inflation.
Money market returns are generally a function of short-term interest rates. Since the current rates are very low, the money market fund (MMF) returns are very low. In this environment, the fund’s management expense ratio becomes very important because it can eat up the returns significantly.
Since the interest rates are low in general, the CD/GIC rates are low too. My suggestion would be to find a low-cost MMF, or invest with a bank like ING until rates have increased somewhat. At that point, you may switch to a CD/GIC if you wish.
As for their safety, MMFs are generally very safe, but they are not guaranteed by the federal government. You should invest with a financial institution that you expect to survive.