1. 20 Investments: Introduction
  2. 20 Investments: American Depository Receipt (ADR)
  3. 20 Investments: Annuity
  4. 20 Investments: Closed-End Investment Fund
  5. 20 Investments: Collectibles
  6. 20 Investments: Common Stock
  7. 20 Investments: Convertible Security
  8. 20 Investments: Corporate Bond
  9. 20 Investments: Futures Contract
  10. 20 Investments: Life Insurance
  11. 20 Investments: The Money Market
  12. 20 Investments: Mortgage-Backed Securities
  13. 20 Investments: Municipal Bonds
  14. 20 Investments: Mutual Funds
  15. 20 Investments: Options (Stocks)
  16. 20 Investments: Preferred Stock
  17. 20 Investments: Real Estate & Property
  18. 20 Investments: Real Estate Investment Trusts (REITs)
  19. 20 Investments: Treasuries
  20. 20 Investments: Unit Investment Trusts (UITs)
  21. 20 Investments: Zero-Coupon Securities
  22. 20 Investments: Conclusion

What Is It?
The money market deals in fixed-income securities, not unlike the bond market. The major difference is that the money market deals in short-term debt and monetary instruments. In other words, money market instruments are forms of debt that mature in less than one year and are very liquid.

That sounds simple enough, so why don't more brokers offer you the ability to buy money market securities? The reason is that money market securities trade in very high denominations, giving the average investor limited access to them. The easiest way for retail investors to gain access is through money market mutual funds or a money market bank account. These accounts and funds pool together the assets of thousands of investors to buy money market securities.

Some investors also purchase Treasury bills (T-bills) and other money market instruments directly from Federal Reserve Banks or through other large financial institutions with direct access to these markets. There are several different instruments in the money market: certificates of deposit, T-bills, commercial paper, banker's acceptances and more.

Objectives and Risks
Institutional investors have used the money market as a safe haven for quite some time. The emergence of money market mutual funds has allowed individual investors to take part in the money market's rates of return, which are higher than those of a savings account or other low-risk investments. The performance of a money market fund depends heavily on the interest rate situation; the best time to put your money in money market funds is when interest rates are peaking.

Money market funds are low-risk investments because they invest in short-term government treasuries such as T-bills and in highly regarded corporations. The one downside of money market funds is that they are not covered by the same federal securities insurance that covers bank accounts, although some funds pursue insurance through private companies.

How To Buy or Sell It

Today, money market funds can be purchased through just about any bank or broker. If you are looking to invest directly in the money market, then you may need to get a full-service brokerage, although you can sometimes buy directly from the government. Minimum investment in a money market fund is usually around $500-$1,000, while investing directly in the money market can cost you anywhere from $1,000-$10,000 to start. (For an in-depth look at the money market, see our Money Market Tutorial.)



Strengths
  • Gains on money market funds are usually tax exempt because they invest mainly in government securities. However, any dividends are taxable.
  • Because they are a good low-risk investment, money market funds are widely used defensive investments when the stock markets are declining.

  • Weaknesses
  • Although returns on a money market fund are higher than those on a savings account, they are still much lower than returns on equities or bonds.
  • Some money market securities are very costly (easily in the $100,000 range), which makes it difficult for individual investors to purchase them.

  • Three Main Uses
  • Income Protection
  • Capital Appreciation
  • Tax-Exempt Savings
  • 20 Investments: Mortgage-Backed Securities

    Related Articles
    1. ETFs & Mutual Funds

      The Pros And Cons Of Money Market Funds

      Find out whether stocking your money in these accounts will stand up to the test of time.
    2. ETFs & Mutual Funds

      Introduction To Money Market Mutual Funds

      Learn about the easiest way to benefit from money market securities.
    3. Managing Wealth

      Get A Short-Term Advantage In The Money Market

      This investment vehicle is often the perfect stop-gap measure for growing your money.
    4. ETFs & Mutual Funds

      The Pros And Cons Of Money Market Funds

      The pros to investing in the money market include the chance to park money in a safe haven during volatile times.
    5. Retirement

      Money Market vs. Short-Term Bonds: A Compare and Contrast Case Study

      Discover characteristics of money market and short-term bonds, including how the investments are alike and different, and the benefits and risks each offers.
    6. Investing

      Financial Markets: Capital Vs. Money Markets

      Two commonly used components of the financial market are money markets and capital markets. Find out the similarities and differences between them.
    7. Investing

      Financial Markets: Capital vs. Money Markets

      Financial instruments with high liquidity and short maturities trade in money markets. Long-term assets trade in the capital markets.
    8. Retirement

      Why Cash is King When Markets are Volatile

      After the past several years, you might be addicted to equity. But when markets turn volatile, cash is the best option. Here's why.
    9. Financial Advisor

      Impact of SEC's New Money Market Fund Rules

      A look at how new rules introduced by the SEC will impact money market funds.
    10. ETFs & Mutual Funds

      2016's Most Promising Money Market Funds

      Learn information on some of the most promising money market mutual funds for investors to consider adding to their portfolio in 2016.
    Trading Center