Money Market Funds


A money market fund invests in short-term investments that pay interest.
 
Money Market = Low Short-Term Risk

Money market funds may invest in ...
  • U.S. Treasury bills and notes
  • Certificates of deposit
  • Commercial paper
  • Banker's acceptances

Money market funds don't invest in ...
  • Stocks
  • Bonds
  • Real estate

Because these investments are very short-term and pay a fixed rate of interest, there is little risk that their prices will change a lot - so they provide a low-risk alternative for investors.
 
But with little risk - there's also little return. If you invested only in money market funds, your money wouldn't grow that quickly and might not even keep up with inflation - that's the tradeoff for having a low-risk investment. On the other hand, money market funds can provide a safety net for part of your nest egg, because money market investments don't lose value the way stocks and bonds can. This may be especially important during your retirement years.