Money Market Investing: Strategies for Portfolio Growth & Stability

Investing in money market instruments may be a good strategy for your investment portfolio. A balanced portfolio should consist of a mix of stocks, bonds and cash in order to balance risk and produce returns that are more consistent.  The money market provides a way to increase the return on your cash portfolio, with a minimal amount of risk.

Money Market Instruments
The money market includes those securities issued by the U.S. government, states and municipalities.  It also includes certificates of deposit or CDs.  A CD that is worth $100,000 or more is considered an investment product and is to subject to the same regulation as other securities. The types of money market instruments available include treasury bills, municipal notes, commercial paper and other short-term investment products.

Money Market Funds
A unique approach to investing in the money market includes investments in money market funds.  A money market fund is an investment company share that provides stable values and safekeeping for your money.  The most typical use for money markets is to protect the principal value of a large inheritance or other asset that must remain stable.  The pitfall with this approach is that while a money market fund promises stable value, the value may not keep pace with the rate of inflation.

Short-Term Money Market Instruments
In addition to money market funds, investors can purchase short-term money market instruments that pay a small amount of interest.  Treasury bills are short-term bonds issued by the U.S. government that have a maturity of 365 days or less.  They are highly liquid and used by money market funds and other mutual fund investments as a way to pay investor’s who redeem their shares.

Commercial paper is a money market instrument issued by corporations and banks.  They mature in 270 days or less and provide a way for a corporation to receive a cash float for a short period of time.  They are sold at a discount to their price and redeemed at full value.  Municipal notes are similar except that they are issued by cities and states and provide a way to fund short-term cash needs for the municipality.