Whenever the share market takes a dive, and we have a bear market, it is time to realize that the stock exchange is an unsafe place for our investments. As long as the market remains bullish, everyone enjoys the returns. However, this is part of the game; it is a risk-to-return tradeoff. For enjoying higher returns offered by the bull market, we have to face the higher risks in the bear market. For those who are unable to face this high risk, and a volatile market, the money market offers a safer alternative.

The money market is one place where government and large institutions come to manage their short-term cash requirements. Individuals can also access these markets with the help of different securities. There are various types of money market securities, which work for you.  At Company Invest, we will make every effort to find individual stocks we feel will net a good profitable trade.  However, when the setups are not favorable, we will either recommend bearish ETFs or putting your money into save havens such as money market funds.

Money market securities have short maturities and are also called cash investments. In reality, the money market is a segment of the fixed income market. Fixed income is usually treated as being same as bonds. However, a bond is just one of the many types of fixed income security. The money market specializes in short-term debt securities, of less than one year. This is shorter than the bond market terms.

Money market securities are generally IOUs issued by large corporations, financial institutions and governments. Since these are considered extremely safe and are also very liquid, at the same time being conservative, they offer significantly low returns, as compared to many other securities.

One of the major differences between a money market and a stock market is that in the stock market the broker takes his commission, and leaves the entire risk to be borne by the investor who is holding the stock. In comparison, the money market securities trade in extremely high volumes, which make it difficult for an individual investor, to act solo. Further, in the money market it is the firms that buy and sell securities in their own accounts and at their own risk. Therefore, the money market can be called also as a dealer market. The dealer market is also characterized by the absence of a trading floor, as in a stock exchange, as most deals are interacted through the electronic systems.

The easiest way for individual investors to enter the money market is through money market mutual funds. Money market bank accounts also serve a similar purpose. The money market funds and accounts serve to collect the investments of thousands of investors in order to purchase the money market securities on their behalf. Treasury bills, however, can be purchased directly. Large financial institutions with direct access to the markets also sell treasury bills. These bills are extremely simple instruments, which explain their popularity. Governments raise money from the public through Treasury bills, as short-term securities that mature in one year or less.  There will be several times a year when you will see a Company Invest post recommending a move to money market funds.

The money market has many other securities and instruments. They offer different risks and different returns. Investors with different needs can use them as per their choice.

COMPANY INVEST BOTTOM LINE

Money market funds are wonderful places to stash your capital when the charts and fundamentals are pointing to a sizeable correction or bear market.  Stay tuned at Company Invest for weekly stock picks and advice on when to move money in and out of money market funds.