If you want to invest your money but don’t want to lock it away for long, then Money Market instruments may be for you.
These short-term investments are often considered as good as cash since they are easy to access and liquidate when you need to. Plus, they have relatively low risk.
Read on to learn the pros and cons of investing in the Money Market.
What are the reasons to invest in Money Market instruments?
There are no risk-free investments, but some of the least-volatile options are Money Market instruments. They are suitable for even conservative investors, those looking for a short-term commitment, and people who want to allocate part of their portfolio to highly liquid products.
Before diving in, here’s what you need to know about Money Market instruments:
Advantages of Money Market instruments
There are unique characteristics that may give Money Market instruments a leg up over other investment choices. Here are a few:
1. They have short-term maturities
These investment products usually mature in 1 year or less.
2. They are easy to withdraw
Money Market instruments are highly liquid, which means they are easy to convert into cash with little to no loss in value.
3. They are relatively low risk
Participants in the Money Market include creditworthy institutions such as banks and the government. Because of this, Money Market instruments are generally safer than other types of investments.
During times when markets are unstable, Money Market instruments could also serve as a safe place to park your cash until things get better.
Disadvantages of Money Market instruments
Due to their low-risk nature, potential gains from Money Market instruments are also low. However, these investments can still offer a higher interest rate than savings accounts.
Since they offer modest returns, your earnings from Money Market instruments may not be able to keep pace with inflation.
Another thing to remember is that low-risk does not mean risk-free. Money Market investments still carry a small amount of risk and returns are not guaranteed.
Weigh the pros and cons while keeping your money goal and time horizon in mind. This can help you decide whether these instruments are worth adding to your portfolio.
How can you invest in Money Market instruments?
There are many different types of Money Market instruments such as commercial paper, Treasury bills, and certificates of deposit, among others which are offered by banks.
These are traded wholesale and may be difficult for individual investors to buy as these require higher capital to invest.
For individuals, investing in the Money Market can be done through Money Market funds. These funds are managed by experts and they come in the form of mutual funds or Unit Investment Trust Funds.
Money Market funds make it easier for beginners to invest since they require relatively low capital to start. You can find these offerings through banks, insurance, or investment companies.
