2006-11-17 06:04:02 · 10 answers · asked by mjbee42 2 in Business & Finance ➔ Investing
Generally speaking, there is no risk in a money market fund. The fund invests in short term products such as commercial paper that are very safe and by definition, each share is priced at a dollar. In theory, the underlying value of the investments could change and the NAV per share could go below $1. But in cases where this has happened the government has stepped in and required the bank or financial institution the make the investors whole.
2006-11-17 06:12:00 · answer #1 · answered by Jason S 3 · 1⤊ 0⤋
If you keep money in a money market fund for many years, the risk is that you might have made more money investing in a stock fund. Also if the interest rate is not higher than inflation, the buying power of your money is eroded.
Example:
You invest in a money market fund and leave it there for 5 years. The average annual interest you receive is 3%.
At the same time a stock fund might pay an average annual return is 6%.
If inflation for this time period averages 4% per year.
You will still have your capital but even with the interest, it is worth less than before.
If you had invested in a stock fund your capital and the increase in value will be greater by about 2% per year.
2006-11-17 07:54:13 · answer #2 · answered by oil field trash 7 · 1⤊ 1⤋
The main risk of a money market fund is loss of purchasing power due to inflation.
If inflation is running at 2% and your money is only earning 1% after taxes, the actual value of your money is falling instead of growing.
2006-11-17 10:14:15 · answer #3 · answered by bookbyte 3 · 0⤊ 0⤋
Well to me, its like asking me what is the risk of me only making 4% on my money. The answer is that you can make 12% for only a bit more risk if you do it properly. For example by buying 2 mutual funds which gets you really diversified.
Here's a page for finding a good good mutual fund to invest in:
http://www.best-stock-trading-systems.com/mutual_fund_ratings.html
2006-11-17 19:18:35 · answer #4 · answered by Anonymous · 0⤊ 0⤋
Loss of capital gained form higher risk / reward investsments. If you're considering Money Market as an investment, your money is best served elsewhere...especially if you are younger.
If you're thinking of using it as a checking account vehicle, think again. Limited amount of withdrawls and checks written are usually associated with Money Markets; they want your money to stay in that account. If you go over a certain amount of withdrawls, transfer, checks written, fee's can eat at your gains.
Other than that, make sure if you get one, you get it from a reputable bank or lending company.
2006-11-17 06:13:39 · answer #5 · answered by ark 3 · 0⤊ 1⤋
there is almost no risk, the fund's goal is to keep the value at $1 per share. i heard of only one fund going bankrupt and paying like .92 per share.
2006-11-17 08:15:26 · answer #6 · answered by hgary06 3 · 1⤊ 0⤋
The risk is the same as any investment in that it all depends on the economy. The key to minimizing risk is diversifying, you don't want to put all your money in one type of investment.
2006-11-17 06:12:44 · answer #7 · answered by btpage0630 5 · 0⤊ 1⤋
it particularly is probable purely a remember of which one is extra significant suited now. in my opinion i might decide for the homestead, reason no longer purely are expenses low ... so are homestead fees. In 2 years the marketplace ought to o.k. turn around and expenses pass returned up.
2016-10-22 06:28:36 · answer #8 · answered by titman 4 · 0⤊ 0⤋
There is no risk. The disadvantage is you get relatively low interest rates.
2006-11-17 06:12:40 · answer #9 · answered by the Boss 7 · 0⤊ 0⤋
the risk that you will lose money vs taxes & inflation. too "safe"
2006-11-17 11:30:00 · answer #10 · answered by vegas_iwish 5 · 0⤊ 0⤋