Money Markets for Short-Term Growth

Read this tip to make your life smarter, better, faster and wiser. LifeTips is the place to go when you need to know about Money Market Accounts and other Financial Planning topics.

Why should I use money markets for short-term investments only?

Money Markets for Short-Term Growth

Chances are good that you've never heard your investment broker suggest a money market account or money market fund for a long-term investment of a large amount of cash. Why? While money market accounts and money market funds are both low-risk investments or accounts, they're also low-return, with rates hovering anywhere from less than 1% to about 2% at any given time. Returns this low do not offer enough growth opportunity to make them a worthwhile investment over the long term.

Good Uses for Money Markets

  • Short-term, low-risk growth
  • Money that needs to remain fairly liquid and not be exposed to liquidity risks: As interest rates go up, investments with low interest rates (like bonds) can be hard to sell. This subjects investors to liquidity risk.
  • Money that you don't want locked into a low return (subjecting it to interest rate risk): When investors purchase investments like CDs, they're locked into a certain interest rate for a number of years and face penalties if they terminate before maturity. This subjects them to interest-rate risk.
Be sure to run some money market comparisons to see whether a money market deposit account or fund would better suit your needs and to find out which one has the better return history.



Nobody has commented on this tip yet. Be the first.


URL: (optional)


Not finding the advice and tips you need on this Financial Planning Tip Site? Request a Tip Now!

Guru Spotlight
Ray Lokar