The Risk of Money Market Funds

After the events of late 2008 there has been some concern in the market that it is not safe to invest in mutualfunds or in money market funds. Savvy investors know that there is a lot of money to be made in a down turned market and that the market will always bounce back - every low must have a high. But to put your mind at ease, let us look at the possible risks of money market funds and how you can over come these risks.

What are Money Market Funds?

Money market funds are specific mutualfunds that invest most of their capital (more than 95%) in short term cash markets.While other mutualfunds invest in a variety of things from shares to property, a money market fund only invests in cash. The outlook of money market funds is generally more short term than regular mutualfunds. In some ways they are also considered to be one of the more low risk mutualfunds available - however as with all investing there is still an element of risk involved when looking at investing in money market funds.

Is There a Risk with Money Market Funds?

There is always a risk with any kind of investing. No one can predict exactly what will happen in the share market or the money market. It can be at a world high one day and crashing through the floor the next day - as we saw in late 2008. The events of late 2008 have lead many people to be concerned about investing in mutualfunds and in money market funds, however there are many ways in which it is actually better and lower risk to invest in money market funds than in other areas, including property which also took a very large hit during the financial crisis. One of the biggest plusses of investing in money market funds is that the United States Government has an insurance scheme to ensure your money is not lost in the market - and that is definitely not an assurance you get when you are investing in property!

How Can I Protect Myself from Money Market Funds Risks?

If you are concerned about the ups and downs of the market then investing might not be for you. The best investors have the ability to put their emotions to one side and to coolly and coldly look at the hard facts and numbers and make decisions without panicking. If you can deal with the ups and downs that are inherent in trading then there are a few things you can do in order to protect yourself from the risks involved in money market funds. The first thing to do is to choose a company that is involved in the United States Government insurance scheme for mutualfunds - this means that no matter what happens, the principal investment you make is safe.The next think you should look at is the mutual fund managers who are available to you. What is their level of education? What kind of success have they had for their clients? Most importantly - what level of success have they had for themselves? If the mutual fund managers you are looking into are not particularly independently wealthy, do they really know enough to make you money if they can not make money for themselves? The mutualfunds mutual fund managers say a lot about the mutual fund. If they are the kinds of people you would feel confident handing your money to directly, then that is a good thing. If they are not then perhaps you should follow your instincts and look into different mutual funds. Of course, you should never make a final decision without talking to your financial planner or your accountant.

As with all investing, mutual funds come with a certain level of risk. However, if you are smart and consult with the professionals you have available to you then you should be able to negate most of the risk and have a safe investment experience.