Posts Tagged ‘Investment’

How market news affect business and investment decisions

How market news affect business and investment decisions

News has become a part and parcel of modern lifestyle. No matter whether you are watching television news or reading a newspaper or reading news stories at a news portal, the objective is the same – getting updated with what is happening around you in all aspects. Businessmen, investors, and corporate people give more importance on business news rather than other news. And for investors and businessmen in the Indian market, business news on India caters to their thirst for information every now and then. Most people rely on a market news portal that carries detailed information related to business news on India. The greatest advantage of reading news at such a platform is that you can read a relevant news article several times and browse through the numerous pages at ease to your heart’s content and to your convenience.

The influence of business is such that even those who are not involved in any stock market investment or business do read business news on India. In the future if they happen to start investing, they will set sail easily no matter what the tide is. To assess the direction of a trend, especially for short term and long term trading, collect statistical data records of market fluctuations over a certain period of time.

You can also view the up-to-the-minute currency exchange rates at a market news platform. Almost all financial sites do run online calculators to help you calculate the currency values and thus find the currency exchange rates of the desired countries. For international traders and forex traders, getting updated with the latest currency exchange rates is a must. Once you are updated with market news, you will no doubt stay away from confusion in case of taking an investment decision.

The activities in the money market change according to what the investors do with stocks and commodities. There are varied investment options in the market today. If you read market news regularly you will know about the latest investment products as well as existing ones that are lucrative. This way you can diversify your investment plans and facilitate yourself and your family with a secured present and future.

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Diversifying Your Investment In The Money Market

Diversifying Your Investment In The Money Market

Determining the profitability of stocks is not as easy as it seems. Proper analysis is a must if you desire to sustain for long in the stock market and if you want that you gain more of profits rather than losses. Because investment involves risk and you cannot do away with this aspect. Moreover, the volatile nature of the market resulting in fluctuations further determines whether the shares you have bought will grow in terms of value or not. To buy stocks, you should take a glance at the most active stocks that get displayed live on any news portal in the finance section or online brokerage platform or at the stock exchanges’ corporate sites. Stay in touch with the live stock market via such platforms if you are serious to carve a niche.

It is not only stocks that are the part of the money market. There are other options for investment as well. Diversifying your investment plans will help you maintain a balance of profits and losses. You will then experience a secured financial health. Diversification can be planned by investing in stocks as well as money market funds like mutual funds and other investment options. In most cases, money market funds prove more profitable than stock investment in the long run. But you never know. It depends on the amount you invest. Invest in short-term, long term, and market funds equally. At times, bulk investment for the short-term enables one reap huge gains. As aforementioned, risk is always there and it is advisable that you study market trends well before investing so that your money doesn’t go into the drains.

Evaluating the behavior of a particular stock would require you to carry out intensive research. It is a blend of effort, time, and patience that will help you invest in potential stocks. Once you take a glance at the most active stocks, make a chart and note down ten of the most potential stocks based on the research you conduct. Filter out further and reduce the number to five. Finally, select one company that has a track record of maintaining growth for the last several years. This way your investment will be secured. Watch the performance of the live stock market regularly to draw effective conclusions. Beginners may face losses initially but with time all investors learn and pick up speed!

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Why A Money Market Savings Account Is Not The Best Investment

Why A Money Market Savings Account Is Not The Best Investment

The selling point for a money market savings account has always been safety and stability. Because of the recent downturn in the stock market plus a general skittishness after the global crisis, some people are falling back on banks as the safest place to put savings. Before you join the trend, however, consider this: banks are offering very low interest rates these days, so that after inflation and taxes, the value of your money will actually decrease over time.

Everyone wants safety, but is an account that loses money safe? While money markets are still considered to be safe-bet investments, they are actually little better than putting your money in a mattress. If we define a safe investment as one that protects your money while providing for at least some positive growth, than a money market savings account falls short.

History shows us that downturns in the stock market come and go. Also historically speaking, the harder it falls, the higher it gets back up again. While savings accounts seem like a safe harbor in a storm, what they really do is to take your money out of circulation just at the wrong time. Sometimes we all have to cut our losses and run, but the smart money stays in the game if it can.

One helpful way to avoid the stress that causes so many to run for the hills is to always remember that investing is a long term affair. Investment money should be savings that you do not expect to need for 10 years at least. By only risking money that falls into this category any investor can relax and calmly wait out fluctuations in the market.

Statistics prove that a diversified portfolio that includes a strong base of safe investments will usually offer growth over the long term. It is common for popular stocks to turn around and experience growth even after long periods of low activity or downturns. It is the nature of the stock market to go up and down and then up again, and the patient investor will most often be the one who is in the right place when the tide turns.

A money market savings account will always be less volatile than the open market, but in exchange your money remains inactive. Added risk is the price of higher returns, but averages show that the benefits usually outweigh the risk. By following the 10-year rule and only using money that you can afford to leave alone, investing in the stock market is still the best way to make your money work for you. One thing is sure: risk nothing and you gain nothing. Money markets are “safe,” but they offer no dynamic growth, and they will not allow your money to reach its full potential.

Investment Corner Part 2

Investment Corner Part 2

Different Types of Investments:

As we said last time, owning a stock is like owning part of a company. As the company rises or falls in value, so does the price of it’s stock. A key distinction is that the value of the stock is not only driven by the fundamental value of the company, but by other factors as well. These factors may include overall stock market trends, domestic versus foreign trade issues, business sector climate, etc. Owning a bond, is like owning part of a loan to a company or institution, like the State of Texas. Bonds typically pay a fixed amount of dividend as the loan is repaid. The bond’s value is determined by the interest rate on the underlying loan, and the current interest rates and trends in the marketplace. For example, who would not want own a 10% bond right now, when the money markets or bank passbook savings accounts are paying 3%? Should the institution or company fail or default on the loan, you could lose all or most of your bond’s value. Large companies or institutions usually issue bonds; so the risk is greatly reduced over owning a company’s stock share.

A stock mutual fund, is a group of stocks owned by a fund company to achieve certain investment objectives. Likewise a bond mutual fund is a group of bonds held to achieve a certain investment objective. Mutual funds, in both stock and bond types exist in many styles and forms. Fundamentally they are a savvy collection of stocks or bonds assembled and professionally managed for a specific or combination of investment aims. These typically diversify your investments so that no one particular company can sink your entire investment. The converse is that no one single stock can shoot your mutual fund up to a huge return.

Typically each mutual fund focuses upon growth, income, value, large, small or mid-capitalization companies, or a combination of these objectives. There are thousands of different funds and dozens of fund families to choose from. There are also companies that rate mutual funds, like Morningstar (www.morningstar.com ). Some mutual funds use a management team to select and prune stocks in the portfolio, some use certain methods, and some follow the leadership of a single fund manager. You should check these out before investing in a particular fund.

An oft-overlooked mutual fund consideration is the management fee or what are referred to as 12b-1 fees. Most fees are in the range of 1 to 2%. Be wary of any fund outside that range. The United States Securities and Exchange Commission can help unravel some of these issues for you. A good starting point is their investor section on mutual fund performance, specifically www.sec.gov/investor/pubs/mperform.htm . They also have a fund cost calculator to help take into account the fund management fees. Some funds are no-load mutual funds because they do not pay a sales person any commissions for selling fund shares. These are typically lower in cost, and if you own them for a long time, they can make a difference in the net return on your mutual fund investment. Conversely, there are loaded funds, which charge a commission when you invest in their fund. These vary widely in amounts, so ask for exact details before investing. Some require you to pay the sales commissions; others add that to the fund expenses. Either way it’s a cost to you. The Vanguard Funds (www.vanguard.com ) are often mentioned as a leader in creating no-load, low cost mutual funds. You will find compelling arguments at their website for owning no-load funds. You should check carefully on overall fund performance including fees when evaluating fund choices.

Measuring Risk:

Most mutual fund and stock tables and resources will list something called the beta or volatility of the items listed. Beta is a measure of the risk of the security listed associated with variation of the security when compared to the overall stock market. If beta is 1, then the stock or mutual fund varies about the same as the general market index. If less than 1, then the security is less volatile than the general index of comparison, with higher than 1 meaning more risk.

Measuring Risk-adjusted Returns:

There is also parameter called alpha, which is the market-adjusted return of the security. If alpha is positive, then the security earned a higher return than the relative market index of comparison. If alpha is negative, then the security earned less than the market did.

Minimizing Overall Risk:

Risks in the future may be reduced in the present only through preparation, planning and actions!

We discussed preparation and planning for the future in the last Investment Corner, which is a key risk-reduction strategy.

Risk reduction for investing is typically achieved through:

• Diversification,

• Portfolio Allocation,

• Pre-determined buying and selling prices, and

• Adherence to personal investing rules.

Now let’s look at the first part of risk reduction strategy for investing.

Diversification:

Diversification is spreading out your investments across several areas to reduce risk and capture growth in multiple places. Diversification is typically done at several levels. At the uppermost level, we typically diversify investments across different investment vehicles, such as cash, stocks, bonds and real estate. By doing this, we reduce several important risks. Inflation can reduce the value of cash on hand over time, which is why smart folks do not keep their life savings in cash hidden in a mattress! On the other hand, inflation can drive down the value of fixed dividend investments like bonds as well. Real estate may rise or decline with inflation, depending upon the health of both the local and the greater economies. Fixed hard assets like precious metals funds (gold) will usually rise on inflation or fears of inflation. Other risks include stock market declines, individual company bankruptcies, and so on…. By not “placing all the eggs in one basket” we lower our exposure to risks through diversification. During broad stock market declines, many folks move assets from stocks to cash or bonds. And of course the opposite during bull market runs.

Another diversification notion is that of slicing up your investment by specific growth sectors. Within a specific type of investment vehicle, say Mutual Funds, we diversify across the available growth and income sectors. Typically this is large, medium and small companies, as well as high dividend or high growth type stocks. You also could look into diversifying into domestic or international companies such as Asia-Pacific.

At the lower levels of investment diversification are multiple choices within a specific growth target. Most advisors strongly recommend diversification within a stock or bond market holding. If you feel for example that the Internet’s growth will continue or expand soon, buying stock in several companies who offer Internet products would help lower risk of any one company not doing too well. Diversification across several stocks is usually done in simple form through equal partitioning. If for example you had ,000 to invest, how would you do it? You could place 20% of your total investment amount in each of 5 different Internet stocks as in Table I:

Table I –Stock Investment Diversification

Stock Name Current Price 90 Day High 90 Day Low Amount Invested ~ Shares

Company A 00 80

Company B 00 50

Company C 00 33

Company D 0 0 8 00 7

Company E 00 250

By looking at the trading ranges across the 90-day history, you can estimate the risks or volatility of each stock. Do the stocks have the same risks? Do they all have the same growth potential?

One approach would be to allocate risks equally, as opposed to allocating investment equally. You would be to use the information in the range of stock trading prices to assess risk and re-allocate your investments as this diversification calculator shows below in table II:

Table II – Risk Diversification Calculator

Risk Diversification Calculator

Investment Amount ,000

Stocks 5

Stock_1 Stock_2 Stock_3 Stock_4 Stock_5

90-day Max 0

90-day Min 8

Cur. Price 0

Trade Rnge 32% 50% 67% 41% 100%

Eq. Amt ,000 ,000 ,000 ,000 ,000

$ $ at Risk 0 ,000 ,333 9 ,000

Risk Ratio 1 1.5625 2.083 1.28 3.125

Risk-Red. ,000 ,280 0 ,562 0

Adj. Inv.,104 ,987 ,490 ,425 3

If you do not want to do the research and monitoring required for several individual stocks or bonds, choosing a mutual fund may be the wisest choice, with a smaller but usually acceptable return on your investment. The key question you need to answer is not “Should I diversify?”, but rather “How will I diversify my investments?”

About YOU

The primary things you should know about yourself before selecting among the different types of investments are:

I. How much of my time is available to monitor/manage my investments?

II. How often do I want to change my investment choices?

III. Do I want help and advice from investment professionals?

These are important questions you need to answer for yourself. All investment requires some time commitments to monitor and manage. When stock markets or life situations begin to change, you may need to change your investment choices. If your experience level does not warrant it, getting professional help may increase both your results and comfort level.

I. Time to manage your investments: Your time is worth money! At least if you can put it to good use in managing your investments… but do not become obsessive with it. Investments take time to grow. Every investment portfolio must be watched and pruned from time to time. You wouldn’t want to look back after 5 years and find that right after your investment choices were made, that the business climate changed and those choices had become poor performers.

Two typical uses of your time applied to investment managing:

• Weekly, monthly or quarterly checking for:

o Stock movements

o Business climate changes,

o Company news

• Annual or quarterly allocation changes

o Re-planning or shifting your plans

o Pruning and re-diversification

o Reallocation of investment amounts

Weekly or Monthly Check-ups

If you buy individual stocks and bonds, these will need monitoring more often than if you had purchased mutual funds. However, stock and bond funds need attention too, just less often.

Some questions you should answer for yourself are:

• Can I afford time each week to check investments (Friday night or Saturday morning)? This is important for individual stocks and bonds.

•Am I disciplined enough to check my investments periodically? This is critically important, as the business environments are constantly changing.

• Can I put this on a monthly calendar and stick with it? Monthly checkups are important no matter what your investments may be…

• If I get an automatic e-mail sent will I read it? Many investment houses will do this for all accounts above a certain size limit. You can pool your investments under one roof, usually with savings in cost plus perks for research, quotes, e-mails, etc. Both Fidelity and Schwab are good examples of these services once you reach certain size limits.

Quarterly or Annual Check-ups

If you are only into mutual funds as investment vehicles, then you need check them only quarterly or annually. After all you are giving up some small amount of income to pay for professionally managed investments, right? You may want to keep up with monthly or weekly news on the investment fund management team, however, as management team shakeups there could cost you. The key thing is disciplined reviews and setting a schedule that you can stick to. Ignorance in this case can be dangerous, so do it together with your spouse or a family member that you trust. As you get good at it, the time required to do these should drop from several hours to perhaps an hour to review all your investments. If you have been keeping tabs on things, it can be shorter still.

“Even if you’re on the right track you will get run over if you just sit there!” – Will Rogers.

II. Changing your investment choices:

The challenge when deciding to change investments is often the emotional content. “We had a return of say 7%, when the broader markets got only 5%”. How did the overall group for your investment vehicle do? Morningstar provides good index comparisons, as do other groups. If your choices did not perform above the class average for 1 or 2 quarters in a row, it’s probably a good idea to consider other alternatives. That may require all the same diligence of researching an investment as you did originally. If you are seriously concerned and need to act quickly, you can always sell and put the proceeds into cash or a money market for a short time while you do the research.

III. Getting help from professionals:

I have often found the larger funds and investment houses to be a plethora of information via the Internet. They have how-to guides, acronym explanations, and in general some great advice. If however, these seem to complex for you, or you would prefer to seek out a single person with whom to deal, then find a Certified Financial Planner. The best ones should be able to provide references, a track record, and a good deal of services all at your doorstep. These services do not come free and can be in the thousands of dollars to set up your initial plans. Be certain to check 3 to 5 references and interview several planners before deciding. Determine what you pay exactly and what you get exactly after your selection is made. Be certain that they are certified, a place to begin is: http://www.cfp.net/ .

Summary

We’ve covered a lot of ground in this topic of stock and bonds versus mutual funds. Primarily remember that individual stocks require more monitoring, but can yield higher returns. The same applies somewhat to individual bonds. Newer investors to these may want to start with mutual funds, Money magazine has an annual issue every February that is very helpful and is usually available at public libraries. Finally remember to lower your risks by diversification, no matter what investments you make. Ask yourself the questions we reviewed about your time commitments and discipline for monitoring as part of the investing process. And of course, read-up on the Internet and some of the books listed below.

Next time – Portfolio Allocation, Pre-determined trigger points, and Personal investing rules …

Self-Study:

Some great resources to continue your journey are located on the web.

Try visiting these sites:

•http://www.greatcompaniesgreatcharts.com/archives/001864.html

•http://www.rightline.net/home/gate_rm.html

•http://www.investorguide.com/stockfaq.html

•http://www.pascoresearch.com/int_alpha.asp

•http://www.stockbook.com/Evaluator/

Or read these well known authors and books:

• William J. O’Neil: How to Make Money in Stocks

• John Boik: Lessons from the Greatest Stock Traders of All Time

• John C. Bogle: Common Sense on Mutual Funds : New Imperatives for the Intelligent Investor

Additional info from this author may be found at http://www.green-energyNJ.com

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Investing Money For 2011 and Beyond: Best Investment Strategy

Investing Money For 2011 and Beyond: Best Investment Strategy

Here at Dynamic Wealth Management we are committed to offering our clients access to the latest and broadest range offinancial services and products on the market. We know that choosing the right strategy, the right investment and the right product is no easy task in this day and age! Whether its advice, investments or financial planning we are here to answer all your questions and facilitate all your financial needs.

Investing money in 2011 through 2012 may require that most people change their thinking about the best investment strategy. Traditional investing strategy for average folks suggests an asset allocation of over 50% to stock funds, about 40% to bond funds, and the rest to perhaps a precious metals (gold) fund for added diversification. In the world of investing money, times are changing; especially for bonds and gold.

In putting together your investment strategy one of the best ways to focus is to consider the flow of money between asset classes over the recent months and years. In the investing world money always goes someplace, and it tends to concentrates in different areas at different times. When money floods an asset class like bonds or gold, prices can rise dramatically. When it makes a grand exit prices can tumble. Extremes in price movements should grab your attention when investing money for 2011 and beyond, especially when you hear mention of the word “bubble”.

In the months leading up to 2011, investors both large and small were investing money heavily in bonds and in precious metals like gold. This investment strategy was among the best as prices in both asset classes climbed to record or near record highs. Millions of everyday folks threw money at bond funds and some discovered gold funds. The question going forward: are prices at extremes, and is either investment a bubble waiting to deflate or burst? Let’s look at bonds first.

Investors have flooded bond funds with an additional net inflow of hundreds of billions of dollars while pulling money out of stock funds in recent times. The bond funds have then taken this money and bought more bonds, in the process sending bond prices up to extremes. This has pushed bond yields (interest income as a percentage) to near-record lows. Looking back to 1981, the 10-year Treasury note (intermediate-term government bonds) hit a high yield of 14%. Today they’re paying less than 3%, near historical lows. The problem: investing money in bonds and bond funds carries a significant risk today. When interest rates go UP, bond prices (values) will FALL. If there is a bubble here it will deflate as investors rush to pull money out of bonds.

The best investment strategy for 2011 in the bond department is to avoid long-term bonds and funds that invest in them because they will get hit the hardest when rates go up. Who wants to get stuck at a low fixed interest rate for 20 or so years when rates are going up? Go with shorter-term funds holding average bond maturities of 7 years or less. DON’T chase bond funds; consider cutting back your holdings. Investing too much money here has too much downside risk associated with it… unless you’re willing to speculate that interest rates and our economy will stay depressed well beyond 2011.

Now let’s get a perspective on gold prices that recently glittered at an all-time high of over 00 an ounce. In 1999 gold sold for as little as 3. Investing money in 2011 and beyond in gold or gold funds at these prices is as much speculation as it is hedging against disaster. The best investment strategy here is to take some profits if you have them. If you missed the boat in gold, wait for the next one. The price of gold has been unstable at best since the yellow metal resumed trading in the U.S. in the mid-1970s. Don’t view gold as the best growth investment. View it more as a speculative bubble with risk outweighing future profit potential. The price would have to go up 00 an ounce in order to double your money at recent prices. This is not a likely scenario.

Now that you’ve cut back on bonds and precious metals, what’s the best investment strategy for the rest of your money? Unless you’re over the age of 80 and/or extremely risk adverse, you need stocks in your investment portfolio. There hasn’t been a real bubble in the stock market since 1999 when the Dow peaked and closed the year at 11,497. In late 2010 that ever-popular stock market barometer was fighting just to get back to its 1999 highs… after the shock delivered to it by the financial crisis of 2008.

In 2011 and beyond investing money in stock (equity) funds should focus on both those that invest in domestic (U.S.) stocks, and in international funds that invest money abroad as well. You need all of the diversification you can get. Go with funds that invest money in large well established companies with a good record for paying dividends. These are less risky and volatile than growth funds that pay little if any dividends. Plus, good reliable income from either dividends or interest is hard to come by these days.

For the rest of your money you need good safe investments that pay interest. Here we face another of today’s extremes: historically low interest rates at the bank and in the money markets. Even though you’re looking at less than 1% a year in interest, you’ve got to go with the flow and continue investing money here because these are truly the best safe investments. The best investment strategy for mutual fund investors: money market funds. When rates go back up your money market fund yields will automatically follow and go up accordingly.

The best investment strategy for 2011 and beyond will be to diversify broadly, leaning toward a defensive posture. Investing money across all of the investment classes mentioned is still the key to long term success as an investor. Sometimes… like now… it’s better to be more conservative when investing, and live to chase opportunity another day.

Investing in your priorities

A socially responsible strategy allows individuals to invest in a way that is consistent with their own priorities. As indicated by performance in recent years, choosing to invest in this manner does not mean sacrificing potential return. However, not all investments will perform in the same way.

If this method of investing interests you, work with your Dynamic Wealth Management financial advisor to learn more about how SRI options can work in conjunction with your overall investment strategy. There are a number of mutual funds to choose from that can be incorporated into an existing or proposed asset allocation strategy. Alternatively, you can select specific investments that fit more particular criteria or apply your own social screens to your managed portfolio. Be sure to consider how any investment you choose matches your risk profile and your return expectations.

The most effective approach to socially responsible investing is to make sure that the execution of the strategy is consistent with your overall financial plan. Your DWM financial advisor can help you review your current asset allocation and help you consider whether social investing is right for you

www.ryanzupan.com Ryan Zupan here with City Wide Financial, I want to talk about a strategy that we’ve been using with just about all of our clients over the past few months. It’s called the Inflation Hedge strategy. The biggest problem I see right now is that, b interest rates have been at historical lows for the past 3 years, there has been an influx of buyers entering the market who, when rates return to a more normal level, a higher level, they’re going to be in a lot of trouble. All of a sudden, from one month to the next, their mortgage payment is going to rocket up by -6-700 when their mortgage is up for renewal. Now, some ppl say, well, in 5 years I’ll be making a lot more money so that won’t be a problem but as we all know, the more money we make, the more we spend & the more expenses we’ll have. You really don’t want to be a situation where you have that payment shock. So this strategy is designed to prepare your mortgage for the higher rates of the future & eliminate that payment shock. How do you protect a mortgage from this type of inflation? What do we do that eliminates this shock? There are a few key values that factor into this strategy. First, we calculate what your outstanding balance will be at the end of your term, then based on where we expect interest rates to be at that time & what we expect your payment to be, we determine what steps we need to take to get your mortgage payment to that level. In a nutshell, the inflation hedge strategy adjusts …
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Related Historical Money Market Interest Rates Articles

Incredible Money Market Rates by Identifying Investment

Incredible Money Market Rates by Identifying Investment

The first and possible the most important consideration when choosing a money market is the interest rate.  And the interest rate is directly related to what type of money market account you choose to invest in.  Money market funds, whose rates of returns are directly related to the market, generally pay the best rates, but also have the most risk.  Let’s discuss further the difference between money market accounts and money market funds.

Money Market Accounts

What we traditionally think of as a money market is the money market account.  These act almost exactly like a regular savings account.  These accounts often pay better interest rates than a basic savings account.  In return, the account holders have to agree to particular terms.  For example, a minimum account balance must usually be maintained, which in some cases can be several thousands of dollars.  Also, the number of transactions the holder can make per month a usually limited to a few withdrawals or transfers.  The most important factor in this type of money market is that it is insured by the FDIC just like a regular bank account.

Money Market Mutual Funds

A money market mutual fund is very similar to a money market account in that it requires a minimum initial investment, a minimum account balance and the number of transactions per month are limited.  The biggest difference is in how the account determines the interest.  In a money market mutual fund, the interest is determined based off how well the market is doing.  Each individual share remains constant at .00, so as the value grows, you are compensated in the form of additional shares.  These shares can later be cashed in for liquid assets if the holder wishes.

The second type of money market investment is called a money market mutual fund. Money market mutual funds invest in short-term, low-risk debt securities, such as CDs, Treasury bills, and municipal bonds.  Also, since these accounts are based off the market, the FDIC does not fully insure the accounts.

Both of these types of accounts are relatively safe investments and make a good addition to a well-rounded portfolio.  It’s not a bad idea to have one of each to truly diversify your portfolio.

Incredible Money Market Rates by Identifying Investment

Incredible Money Market Rates by Identifying Investment

The first and possible the most important consideration when choosing a money market is the interest rate.  And the interest rate is directly related to what type of money market account you choose to invest in.  Money market funds, whose rates of returns are directly related to the market, generally pay the best rates, but also have the most risk.  Let’s discuss further the difference between money market accounts and money market funds.

Money Market Accounts

What we traditionally think of as a money market is the money market account.  These act almost exactly like a regular savings account.  These accounts often pay better interest rates than a basic savings account.  In return, the account holders have to agree to particular terms.  For example, a minimum account balance must usually be maintained, which in some cases can be several thousands of dollars.  Also, the number of transactions the holder can make per month a usually limited to a few withdrawals or transfers.  The most important factor in this type of money market is that it is insured by the FDIC just like a regular bank account.

Money Market Mutual Funds

A money market mutual fund is very similar to a money market account in that it requires a minimum initial investment, a minimum account balance and the number of transactions per month are limited.  The biggest difference is in how the account determines the interest.  In a money market mutual fund, the interest is determined based off how well the market is doing.  Each individual share remains constant at .00, so as the value grows, you are compensated in the form of additional shares.  These shares can later be cashed in for liquid assets if the holder wishes.

The second type of money market investment is called a money market mutual fund. Money market mutual funds invest in short-term, low-risk debt securities, such as CDs, Treasury bills, and municipal bonds.  Also, since these accounts are based off the market, the FDIC does not fully insure the accounts.

Both of these types of accounts are relatively safe investments and make a good addition to a well-rounded portfolio.  It’s not a bad idea to have one of each to truly diversify your portfolio.

Financial Investment 12 – Term Deposits, Government Bonds,treasury Bills & Money Market Funds

Financial Investment 12 – Term Deposits, Government Bonds,treasury Bills & Money Market Funds

Financial instruments found in the debt market include:

1. Term Deposits

2. Government bonds

3. Treasury Bills (T-Bills)

4. Money Market Funds

5. Corporate Bonds and Debentures

6. Domestic Bond Funds.

In this article, we will only discuss the term deposits, government bonds, treasury bills and money market fund.

1. Term DepositsTerm Deposits are qualifying instruments for tax shelter and will share the following characteristics.

a) Short-Term Deposit: less than 1 year

b) Long-Term Deposit: to 5 years.

Interest Rate: depends on length of deposit and competitive interest rates available in the marketplace.Long-term investments are called Guaranteed Investment Certificates (GICs) and can be purchased for a lesser amount such as 0. They are also called a Certificate of Deposit (CD). Rates may vary as little as 0.10% amongst the deposit takers.Term Deposits may be cashed prior to maturity, but this may incur a penalty. GICs generally cannot be cashed before they mature, although some deposit takers are now more flexible.

2. Government saving bonds

Country residency is required and guaranteed by the country of issuer.

a) Are registered bonds that provide protection against loss, theft or destruction.

b) Are not transferable.

c) Can be purchased for a minimum of 0 to a maximum of 0,000.

d) The interest is taxable and is competitive with GICs.

e)  Mature in 10 to 12 years.

In Canada, Canadian saving bonds are issued as either R bonds or C bonds.

In US, US saving bonds are issued as series EE bonds, Series I BondsThe investment risk for government savings bonds Issued by Canadian government or US government is nil, since the bond is guaranteed by the federal government.

3) Treasury bills (T bill)Treasury bills are a short term money market instrument and issued by the federal government in terms of 30, 60, 91, 182 and 364 days. They are sold by auction.Banks and investment houses buy at wholesale in multiples of million denominations. They then sell these T-Bills to brokers and investment dealers who break down their purchases into ,000 lots.

T bills are sold discount to their face values and also sold on the secondary market and their value fluctuates depending on competitive interest rates at the times of resell.The short-term nature of T-Bills does not cause a large exposure to interest rate risk, but to some extent there is an inflation risk.If a T-Bill is sold before maturity, any gain is taxed as interest.

4. Money market fundsMoney market fund holds T bills and other short term money market contracts. Investors pool the investments through the mutual fund. Units in this fund can be bought and sold daily. Money market funds produce capital gains although their primary function is to generate interest income. Interest is generally paid monthly, while capital gains are paid annually.The benefits of money market funds include

a) Security of principal

b) Liquidity.

c) Eligible for plan registration

I hope this information will help. If you need more information, you can read the complete series of the above subject at my home page:

Kyle J. Norton

http://lifeanddisabitityinsuranceunderwriter.blogspot.com

/http://financialinvesting12.blogspot.com/

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