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Other Investments: Money Markets, CDs and Fixed Income |
| | | When you're building an investment portfolio, it's important to have a mix of investment types. Sometimes you will be more aggressive, while other times the market requires you to be safer. For these safer investments, there are some attractive options many traders don't consider. 
Sometimes the answer is so simple, it's easy to miss. For some traders, the investment of choice in a down-market can be traditional retail instruments like money market accounts, CDs, or fixed-income annuities.
Don't risk your nest-egg if you don't have to
Before we talk about these conservative investment types, it's important to make sure you think of your money from the standpoint of suitability.
Ultimately, you're saving for retirement, sooner or later. Make sure you understand what your goals and plans for lifestyle are at that time, as that will lead you to knowing what kind of investing you need to do.
If you already have the money you need for retirement, why would you risk it by investing in stocks or funds that could lose all their value? The investment types we discuss below are great for people who have the money they need but would like to see it earn a little. And they're also good for people who have sectioned a portion of their portfolio for conservative growth, with very little risk.
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Money Market Accounts
For simplicity's sake, we'll discuss two basic types of money market accounts in the US: Deposit Accounts and Money Market Mutual Funds.
Money Market Deposit Accounts are usually administered by traditional retail banks, and work in a manner similar to savings and checking accounts. Think of them as a high-interest rate savings account. Sometimes banks even allow checks or debit cards to be used on the account. Other times they may require a short waiting period for money to be withdrawn. More often than not they will have a minimum and maximum account balance.
These accounts are a great option for investors looking for a solid return on funds that are liquid, meaning, available for cash immediately. The interest rate they return is usually lower than comparable instruments, but can often generate solid returns with very little risk.
Money Market Mutual Funds are funds designed to be fairly conservative, and are typically invested in US Treasury Bills and short-term commercial debt. The usually require higher account values and have fees and commissions that are associated with most mutual funds. While Money Market Deposit Accounts work similar to a regular bank account, these money market funds are traded in an account like an IRA or brokerage account.
These funds are a great option for investors who are maintaining a portfolio of stocks and funds, and the market is just too uncertain to place any regular trades. You can sell stocks or funds and keep your money in these kind of funds while you wait for other alternatives to present themselves.
To learn more, be sure to read Understanding The Money Market.
Certificates of Deposit (CDs)
These are almost always offered through a bank or credit union, and attach an interest rate to a time frame. Usually, the longer the time-frame, the higher the interest rate. There are often penalties attached to withdrawl of the funds before the term of the deposit is ended. Because of this, the rates offered on CDs are usually higher than those offered by Money Market Deposit Accounts. Similarly, bigger deposits usually correspond with higher rates.
CDs are an option for investors who are very conservative with their savings. If you wish to generate a higher return than a deposit account, and don't need to have the money available at a moment's notice, these can be a great option. They have a guaranteed return, but usually at a lower rate than more aggressive investment types.
Fixed-income Securities
For more sophisticated investors, there are financial instruments which offer a fixed rate of return over a certain time period. These are called fixed-income securities. They are similar to bonds, in that they offer a rate over a period of time, and these investments are actually turned into a security and traded in the open market.
To learn more, read Treasure Inflation Protected Securities (TIPS).
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