The Money Market Fund account is presented as one of the less risky methods of saving money. It is an especially appealing method because of the ease of access that it gives you as well as its compounding element.
However, as Rhina Namsia, the founder of The Acemt Consulting, a training and consultation company that provides financial planning and investment advisory, explains, the Money Market Fund account has a downside too.
In fact, Rhina says that you might be very disappointed if you go for it without fully understanding how it works, what it’s purpose is for, and whether you are a good fit for it. Here’s Rhina’s take on the MMFs:
If you do not understand the essence of saving, but jump straight to investing, don’t use the Money Market Fund Account as your investing tool.
Use Money Market Fund Account for the following and it will make sense to you;
1). Have some windfall but not yet sure what to do with it.
2). Building on Sinking and Emergency funds.
3). Building a black tax fund.
Basically it’s putting money aside awaiting usage in the near future. Money markets help protect your cash against inflation.
But don’t get it twisted huge sums of money when put in a money market can result to good returns even in that short run. It’s the little money that earn dew coins when one is expecting huge returns that makes people get discouraged.
MMFs earn interest on compounded basis. This means the interests earned also earn interest on a daily basis and compounded at the end of the month then credited to your account less withholding tax at end of the month.
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Don’t look for crazy “cryptocurrency” kind of returns in MMFs. I’ve had this with so many young people. They want MMFs because of it’s low risk nature but do not understand that the two are structured differently and the latter can’t offer crazy returns.
