For investors who are less interested in high-risk investing and prefer slow, steady returns, money market investing may be the best option. The money market is the pool of available funds that, provided by willing investors, financial institutions, governments, and backs draw on to finance expenditure in a cheap way. They do this by issuing various forms of I.O.U. These include certificates of deposit (in the case on banks), U.S. Treasury Bills (for government loans), commercial paper etc. When banks are seeking to invest heavily in some new prospect, they often draw on funds available in money market investing. Similarly, governments can look to it to help offset budget deficits. Large corporations seeking funds to finance their desired expansion can also draw from this pool, if they have enough of a reputation to elicit trust from potential investors. There are common factors among all these types that make money market investing unique.
Most investors in the money market choose it because of its relative safety. Unlike other investments that offer greater prospects, but also greater risk of loss, incidence of loss in money market investing is negligible. This is, largely, because the institutions seeking the funds are usually highly reputable, and have a lot to lose should they default on their agreements. Such “goodwill” leverage makes these investment devices very popular among investors who dislike the great risks posed by other, more lucrative, investments.
The negative to money market investing is relatively low return. The institutions involved in the borrowing aspect of money market are not particularly generous with interest rates (unless they need to raise the money fast) and, for that reasons, returns on money market investments tend to be far lower than other investment strategies. Investors who fancy this device simply consider it the price to pay for secure, guaranteed earnings, as opposed to the nerve-racking experience of forex trading – though the potential returns are much higher.
One other advantage to money market investing, as opposed to instruments like bonds, is that they mature relatively quickly. This means that investors get their money back, and the associated interest, in a shorter period of time, making those funds available for further investment as the individual desires. This luxury is afforded by other investment types, such as the stock market, but not with the level of security offered by the money market.
All in all, this type of investing is perfect for investors who dislike risk, and are happy to accept lower returns that they can count on. As implied before, losses in this type of investment are almost non-existent, giving investors the peace of mind that comes with knowing that your money is safe.
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