Money Market Funds
Money market funds are a type of investment fund designed to provide investors with the best return possible on their investments. They are often compared to bank savings accounts, but unlike those accounts, money market funds offer a higher rate of return and more liquidity than other types of investments. Money market funds typically invest in short-term debt instruments such as certificates of deposit (CDs) and commercial paper.
History
The concept of money markets was popularized by economist John Maynard Keynes in the early 20th century as an alternative way for individuals to save their money besides putting it into banks. Originally seen primarily as an institutional financial tool, they were used mainly by companies and governments who needed access to short-term funding. In the 1970s, new regulations spurred innovation that allowed individuals to invest directly in these funds through mutual fund companies like Fidelity Investments or Vanguard Group.
How Do Money Markets Work?
A typical money market fund invests mainly in high quality, short-term debt instruments such as certificates of deposit (CDs), treasury bills (T-bills), repurchase agreements (repo’s) and commercial paper from corporations. The underlying securities have maturities ranging from overnight up to one year, although some may extend out longer if necessary for liquidity purposes or due to changing interest rates. Because many debt instruments have varying maturities throughout the life cycle of a particular security or portfolio, it is important for investors to understand how this affects yield curves over time so they can make informed decisions about investing in them appropriately based on current economic cycles and conditions..
Investors looking for higher returns should consider allocating part of their portfolios into various asset classes including stocks, bonds and commodities; however when safety is paramount then placing some capital into a money market fund can be beneficial due its low volatility nature which generally keeps principal safe while offering competitive yields over time when compared against most traditional banking products available today
