Comparing Money Market Funds
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How do you compare money market funds?
When you conduct a money market comparison, you may be unsure of what to look for when you evaluate funds. Here is a short list of three commonly compared aspects:
- Historical return: Naturally, you want to get the most out of your investment. Look for money market funds with steady historical growth.
- Underlying investments: Money market funds are not different from mutual funds when you see the diversification of underlying assets. Some money market funds invest in government securities, some in bank CDs, some in international cash, others in a mixture of investments. Be sure to explore the underlying investments of the money market funds you're considering to make sure you're comfortable with their portfolios.
- Consider taxes: With most money market funds, you'll need to pay capital gains taxes on the dividends. However, there are some money market funds that invest in government securities and are tax-exempt. These usually offer lower growth, but the tax savings could make it worthwhile. If you're investing a large sum, this could be a good option, as the tax savings could easily outweigh the reduced return.
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