With the uncertainty and fluctuations of today’s stock market, many investors are looking for more secure methods of investing their money. Money market investing is one of the strategies that can be used as a conservative but relatively secure investment strategy, and is an interesting alternative to a traditional term deposit or even a high interest savings account.

The money market is effectively a type of fund in which the fund managers invest in a range of short term securities. These can include certificates of deposit, government issued treasury securities, and other financial instruments that generally have a short term or fixed maturity of less than one year. These instruments are referred to as ‘paper’ or ‘commercial paper’

Money market investment is considered a safe strategy for parking your cash, due in part to the liquidity of the securities. However while it is relatively low risk, it is also low reward – hope to stay ahead of inflation but don’t be surprised if you make as little as a few percent return on your investment.

Benefits of money market investing

One of the great benefits of money market investments, apart from their security, is the flexibility with which you can access funds when needed. This is in contrast to fixed term deposits. In fact, many money market funds have an option to write check s against the balance of your fund.

Money market funds also allow purchasers to enter with a relatively low investment.

Points to consider

• Like any fund, investing in the money market will mean paying fees to the fund manager. If you are only parking a small amount of cash, factor these costs into your projected return on investment.
• Low ROI. Despite the uncertainty and risk associated with the share market at present, there are still plenty of good buys. In fact, some argue that there has never been a better time to pick up bargains. By taking the safe route and plunging all cash into low return but secure funds, investors are giving up potential gains.

As with any investment tool, money market investing is a valuable way to reduce the risk associated with a volatile market. However, make it a component of your portfolio while still using some of your cash assets to give yourself the chance of generating better returns.

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Unless you are making a time-sensitive or news-related investment, wait three days before buying or selling a security.  One thing that nearly every individual investor suffers from is rash decision making and buyer’s (or seller’s) remorse.  Giving your decisions a generous incubating period allows you to remove the emotion from the equation.  During this three day period, you will also have extra time to analyze the financials, pore over the annual and quarterly reports, and research the company.  You were doing your research, right?  This brings us to the next investing tip.

Familiarize yourself with the meanings of financial statistics and the language of business writing.  It doesn’t take a genius to understand what a standard ratio like price over earnings (p/e) means or to be able to decipher a company’s balance sheet.  Specifically, you want to look for companies that have a high level of earnings compared to other companies in the sector and for companies that are cash-rich and carry a small or manageable debt load.  For a very in-depth explanation of all of the terms and how to read financial statements, consult some of the other sections of this site or Benjamin Graham’s classic, The Intelligent Investor

Buy the rumor, sell the news. This motto is often repeated in financial circles, but its meaning is not well understood.  Specifically, the motto is a reference to market psychology.  Take this hypothetical scenario:  A rumor is floated that a $3 per share broker is being purchased by a national bank for between 5 and 10 dollars per share.  The stock price of the broker would certainly reach 10 dollars a share, and in fact the buying pressure may be so high that it would rocket past ten dollars.  Now take another hypothetical scenario:  The news is released that a $3 per share broker is being purchased by a national bank for $7.50 a share.  The stock price of the broker would likely move to the $6-7 range, and maybe stay even lower based on skepticism that the deal would ever happen.  This scenario plays out over and over in the market.  Just remember that rumors tend to generate optimism and news tends to generate cynicism.  If you intend to make news-related swing trades, you should deal primarily in rumor and not news.  This principle also works in the opposite direction:  Negative rumors kill stock prices, whereas negative news, unless it is catastrophic, tends to have little effect on the stock price of a company.  If you catch wind of a negative rumor about a stock you own, it just may be time to cut your losses.

Ditch high-priced brokers. Even though there are scores of brokers these days that offer trades for as cheap as $5-10 per trade, a lot of people still do their individual investing through brokerages that charge as much as $25 per trade.  Most of the discount brokerages also have banking wings, so moving your money around is absolutely no problem.  In the world of investing where small percentages make all the difference, you absolutely cannot afford to be paying out your profits to your broker.

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