Short Term Bond vs. Money Markets

Those who are weighing their choices with regards to short term bonds and money markets will want to have as much information as possible to reach a final decision as to what they want to end up doing. The truth is that they are both financially safe investments, though they are certainly not completely free of risks just like anything else you put your money into. While you will have to deal with more of a risk with short term bond funds, in return there is the chance that you will see a bigger return on your initial investment and the fact that they are liquid also helps. You will definitely want to consider short term bond funds as a secondary source of liquid income. They are usually associated with high credit quality as well as high diversification potential because of credit and maturity purposes. Usually people do not invest in short term bond funds for more than a total of three years.

You will also want to know what some of the requirements are for money markets if you are thinking about getting involved in them. There are several different types of money markets and it is important to learn as much as you can about each. A small percentage of money market funds trade at their net asset value and the rent follow the rules which have been laid out by the Security and Exchange Commission. They follow these rules in an effort to offer prices which are able to secure the total value of the asset at just $1 per share. Those who are investing in these money markets will be able to write checks with peace of mind, knowing that their asset values are stable and they will receive a significant amount of interest on the deposits they have made.

A variety of financial instruments are used for both fixed rate and variable money funds; this includes commercial paper, certificated of deposit (CDs), short bonds, and treasury bills. Money market funds tend to have a maturity period of no longer than thirty days. Most bond funds typically hold AAA and AA world bonds, so you know that you will be able to trust their overall value. The rating of the bonds you get is extremely important because it will let you know whether or not they are worth investing in. The “AAA” bonds are typically thought of as the best ones to put your money into.

It is important to consider the yield advantages for both money markets and short term bonds. Most of the time you will find that there is a higher yield with money markets, though there are those somewhat rare times when short term bonds spike up and offer a huge return on the initial investment you have made. There are typically higher expenses associated with short term bonds and the management fees can be slightly more than with money markets, so that is certainly something to take into consideration when trying to make a decision about one over the other. How much the fund yields is a matter of the market conditions; however there are some investments which tend to yield more than others.

You will eventually need to decide on your investing horizon, which is to say how much you are going to invest and when. Sometimes people decide to invest in short term bonds right away while investing in a money market fund later on with the money they have saved up. Anyone who is thinking about putting their money into a short-term bond fund will want to weight the potential risks against the financial benefits which can be yielded from this type of investment. Of course there are risks with any financial venture like this, but one must consider their decision from every angle before proceeding.

Because the asset value of the fund will fluctuate over time, you can either gain or lose money by withdrawing your funds. You will find that with a majority of short term bonds you will be able to write checks but it is not recommended for most. It is important to consider that if you write checks with a greater total in the fund than what your cost is you will be generating more income with every time you write one. If the total value of the fund is below what the cost is, you will end up generating a loss. These things are extremely important to consider when you are weight the benefits of short term bonds over money market funds.

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