If you're seeking to invest funds and are wondering, "How do I double my money?" you may want to consider a money market (we will call them MM) or a mutual fund. If you are somewhat risk- averse and don't wish to put all of your funds into risky stocks, either of these options may be a great investment opportunity for your funds.
The first step is understanding the difference between the two. A MM fund is a fund that invests in financial instruments like certificates of deposit, US Treasury bills, banker's acceptances, commercial paper and federal funds. Mutual funds are investment pools that invest according to the type or style of fund it has been designated as. A MM fund is simply one type of mutual fund.
Money market funds run a broad range of investment tools, from low yielding and conservative funds that invest only in US Treasury bills and federal funds to investing in other instruments that take on more risk in order to pay out higher rates. It should be noted that these types of accounts are not FDIC insured instruments, however many of the investment tools that money markets take in to their portfolio are in fact FDIC insured. This security is therefore conveyed.
Mutual funds can be reasonably safe when they invest in US Government bonds and high-end corporate bonds. If you find that you don't need to withdraw your funds from the instrument in one year or less, this could be a great option for you. There is some risk of losing money, but in the range of greater than one year, this is not highly likely. They generally will net a higher yield than MM funds. Keep in mind, though, that they primarily invest in longer term instruments and maturities, so to double your money, you must leave it in the instrument for a longer period of time.
For the ultra- risk averse, some banks offer a money market account that is basically like a savings account and are FDIC insured. These particular accounts are not considered to be mutual funds and unlike the MM mutual funds, you are limited in a money market account as to the number of withdrawals you may make per month or per year. In general, a MM mutual fund will offer higher rates of return than a money market account, but always be sure to check on the fees associated with each type of account or instrument. In periods of time when rates of return happen to be low, the associated fees may actually exceed that which you earn on interest. Even if that is not the case, fees of any rate lower the return on your investment. A large number of MM mutual funds do not have fees associated.
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The first step is understanding the difference between the two. A MM fund is a fund that invests in financial instruments like certificates of deposit, US Treasury bills, banker's acceptances, commercial paper and federal funds. Mutual funds are investment pools that invest according to the type or style of fund it has been designated as. A MM fund is simply one type of mutual fund.
Money market funds run a broad range of investment tools, from low yielding and conservative funds that invest only in US Treasury bills and federal funds to investing in other instruments that take on more risk in order to pay out higher rates. It should be noted that these types of accounts are not FDIC insured instruments, however many of the investment tools that money markets take in to their portfolio are in fact FDIC insured. This security is therefore conveyed.
Mutual funds can be reasonably safe when they invest in US Government bonds and high-end corporate bonds. If you find that you don't need to withdraw your funds from the instrument in one year or less, this could be a great option for you. There is some risk of losing money, but in the range of greater than one year, this is not highly likely. They generally will net a higher yield than MM funds. Keep in mind, though, that they primarily invest in longer term instruments and maturities, so to double your money, you must leave it in the instrument for a longer period of time.
For the ultra- risk averse, some banks offer a money market account that is basically like a savings account and are FDIC insured. These particular accounts are not considered to be mutual funds and unlike the MM mutual funds, you are limited in a money market account as to the number of withdrawals you may make per month or per year. In general, a MM mutual fund will offer higher rates of return than a money market account, but always be sure to check on the fees associated with each type of account or instrument. In periods of time when rates of return happen to be low, the associated fees may actually exceed that which you earn on interest. Even if that is not the case, fees of any rate lower the return on your investment. A large number of MM mutual funds do not have fees associated.
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