Money market funds stand out as an ideal investment vehicle for those prioritizing cash management. This type of mutual fund is designed with a triple aim: to provide steady income, preserve capital and maintain high liquidity.
It accomplishes these goals by investing in short-term fixed-income instruments such as promissory notes, commercial paper, certificates of deposit (CDs), Treasury bills and repurchase agreements.
These instruments not only offer yields that align with current short-term interest rates but also boast high credit quality and are readily tradable, ensuring ease of access for investors.
"If you have cash that you may need to access soon, a high-yielding money market fund is a good place to park it safely," says Jim Penna, senior manager of retirement services at VectorVest.
A critical feature of money market funds is that the net asset value (NAV) per share is fixed at $1. Except in rare cases of extreme market turmoil, this characteristic allows money market funds to offer a stable investment experience, free from the volatility often seen in other markets.
However, it's important to note that not all money market funds are created equal. Some come with high expense ratios that can reduce the net yields investors receive, while others impose minimum initial investment requirements that can be a barrier for those with smaller accounts.
Related:
Charles Schwab is one asset manager that sidesteps these potential pitfalls. Schwab's money market funds are known for having no transaction fees, no sales loads and no minimum required investments,........