Swagger comes from the confidence of knowing you can say “I got this” no matter what comes your way. Yet, it’s hard to walk boldly with a gorilla of financial worry on your back.
You want to know who has swagger? People with a lot of dough invested in a money market account.
What is a money market?
Put simply, a money market is a type of fund that invests in very short-term debt instruments – often thirty days or less – that are more like IOUs than bonds.
Primary objective: to preserve the dollars invested by maintaining a share price of one dollar per share.
Money market features:
- Considered to be as liquid as cash
- Often comes with check writing privileges and/or electronic bank transfers
- Investor earns interest on daily balance
- Interest accrued for the month is added to account on the last business day
“But wait,” you might be wondering, “How can it be an investment if there’s no risk and such meager returns?”
How can it be an investment if there’s no risk and such meager returns?
Eau contraire! Generally, there is very little risk with a money market. But, as we saw with the 2008-09 financial system meltdown, money markets can “break the buck” and lose value. Plus, the funds are not insured or guaranteed. And the interest you earn, called a yield, can change without notice.
Break the buck: a phrase used to describe a situation when a money market account varies from one dollar per share. Although rare, it can happen; and did so as recently as 2009 with many money market accounts.
Ways to use a money market:
Emergency fund. You’ve likely heard money gurus say more than a handful of times: Build up an emergency fund of three to six months of expenses. A savings account at a bank is one way to do that. But a money market account usually pays a better rate.
Sweep account. If you have a trading account with a brokerage firm, chances are that any funds that are not invested in securities are sitting in a money market account. When you sell a stock or mutual fund after reaching your investment goal, parking the proceeds in a money market puts you in a position to take quick action when another attractive investment comes along.
Short-term investment. Let’s say you recently sold a pricey piece of property such as a RV or home, or maybe you received an inheritance. A money market is a good place to park those funds and earn interest until you need them for another purchase or expense.
Money market yield: a measure by which performance of money market funds can be compared. Usually quoted as a 7-day current or effective yield, the calculation is standardized across the industry to help investors make fair comparisons. Yields can vary and are usually roughly in line with the inflation rate. Most money market yields have been 1% or less in recent years.
Money market yields have been 1% or less in recent years.
Why would someone invested in a money market have swagger?
If someone uses a money market account in the ways described above, they are likely to have more confidence that no matter what comes their way financially, they’ll be able to handle it. When a person has adequate savings to handle emergencies, and enough extra cash parked in a money market to get in on investing opportunities that come along, they can walk a little taller and with a little swagger.
Important: The information provided here is for educational purposes and should not be considered advice. Before you make any final decisions, consult a trustworthy financial professional and/or tax planner.