Should I Convert Mutual Funds to Money Markets?
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Benefits of a Mutual Fund
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Generally, if an investment will be kept longer than five years, it is better to keep the money in a stock mutual fund. Mutual funds typically yield a higher interest rate than a money market account. Stock mutual funds provide a good hedge against risk and are managed by stock market professionals.
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When Does a Money Market Make Sense?
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For short-term goals, it sometimes makes sense to transfer an investment to a money market account. If, for instance, an investment is in place to act as an emergency fund, it would be better to have the money in a money market account where the funds are available when needed. In a situation such as this, the rate of return is not as important.
Bottom Line
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According to Dave Ramsey, a personal finance talk show host and author, mutual funds provide a higher rate of return than money market accounts, so keep the investment in the fund unless the money may be needed in five years or less.
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