A tax-free money market fund is an excellent way to diversify your portfolio, particularly if it is heavily weighted in stocks. There is a lot of confusion in the global economic situation. As a result, investing in debt funds such as government securities and money market funds makes sense. Do you want to learn more? Visit these details.
Retail investors (like you and me) have never faced the risk of losing money in these funds, with the exception of a notable exception in 2008. What is the reason for this? Let’s look at it more closely.
Money market funds invest in high-quality short-term IOUs provided by the government of the United States, banks, and large companies. T-bills, commercial paper, and short-term CDs are examples. This short-term debt has an average maturity of less than 90 days. As a result, when one IOU is paid off with interest, another is issued in its place.
Money funds have a long history of being considered extremely secure investments. T-bills issued by the United States are considered the best investment in the world. Short-term debt of high quality has a proven track record of protection. No big debt-issuing company can afford to default on any debt. Their credit score will suffer as a result, making possible borrowing more costly and difficult.
The value of money market funds’ stock is set at $1. The price of a stock does not fluctuate. Dividends are paid to investors in the form of interest. The rate at which these funds pay varies in accordance with the economy’s short-term interest rates. Money market funds are highly liquid. You can withdraw money from them quickly and easily without incurring any charges or fees. There are no sales commissions when you invest.