Making Moves to the Money Market

At the end of the first quarter of 2009, 41% of total mutual fund assets were invested in money market funds, compared with 30% a year earlier.¹ Many investors move money into these funds in reaction to financial turmoil and changes in interest rates.

If you are seeking protection from market volatility, money market mutual funds can provide a place to stash your cash, but the lower risk doesn’t come without its own considerations.

Money market funds are mutual funds that invest solely in cash-equivalent assets that are categorized as low-risk, low-return investments. These funds seek to preserve a value of $1 per share.

Temporary Parking

Because of their liquidity and low level of risk, money market funds can be a good place to “park” your investment dollars in some situations. If you are expecting to need a sum of cash in the near future or are looking for a place to put money while deciding where to invest it next, money market funds may be a good option.

A Couple of Caveats

Although money market funds may provide some shelter from periods of market turmoil, their low rates of return may not make them ideal for long-term investing. Over the course of several years, meager gains could turn into net losses as inflation erodes the purchasing power of money.

Furthermore, pulling money out of the stock market during a crisis is an understandable emotional reaction. But this strategy may cause an investor to miss out on potential gains when the market recovers.

Money market funds can play an important role in a balanced portfolio that takes into account your savings goals, risk tolerance, and time horizon. However, you should consider carefully whether cash investments will help you reach your long-term goals.

Money market funds are neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although money market funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in such a fund.

Mutual funds are sold only by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

1) InvestmentNews, May 4, 2009

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by StoneRiver–Emerald. © 2009 StoneRiver, Inc.