What Is a Money Market Investment?

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Money market funds are savings accounts that yield a percentage of return based on interest rates and investments made by the money market manager. Be sure to read the contract for a money market investment with advice from an investment consultant in this free video on investing.

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Video Transcript

I'm Roger Groh with Groh Asset Management. What are you doing with your cash these days? You know it used to be that you could buy short term treasury bills, 3 months or perhaps 6 month treasuries and get a rate that was 1 or maybe even 2 percentage points over inflation. But today you get about zero percent interest in them. So with your cash or your very short term focused portfolio, what are you doing? Are you investing your money in money market funds today? Something to consider, until recently most money market funds were not insured by the US government. Today most are, but the prime consideration for any investment should be are they guaranteed or not by the US government? You should just be aware of it and then make your investment decision accordingly. Second, if the interest rate on the money market fund seems unreal, in other words if short term treasuries pay zero, how much more really can a money market pay? 1 percent, maybe 2? Not a whole lot more. Now if they're paying 3 or 4 or 5, there's probably leverage or something else going on in there so that's another thing to consider. All that means know what you're buying before you buy it. Really read the prospectus, talk to your investment professional, either your broker or perhaps your discount broker, they'll be glad to talk to you. Last if you really want to know, call the manager. Their name and phone number is always in the prospectus. Another item to consider when you think about money market funds, even though today interest rates in the United States are very low and therefore interest rates that are paid on money market funds are very low, outside the United States interest rates may be higher. And you may consider making investments in countries outside the US. That's a much different investment decision then a traditional US mutual fund, but nonetheless, it's something else to consider. If interest rates do begin to go back up here in the United States, clearly the yields and money market funds will do the same. I hope that helps, I'm Roger Groh with Groh Asset, thank you for spending a few minutes with me.

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