Easy to use, convenient, and widely available, Money Market Accounts and Money Market Funds make great investment options for retirees, especially for your Emergency Fund or other cash savings
Disclaimer: We are not financial professionals, and this article is intended only to educate and inspire, not to provide specific advice about your specific personal financial situation (so don’t call the lawyers).
Part 7 of “How to Invest – Safely and Smartly – During the Retirement Years”
So far in this article series we have covered the basics: keeping your money safe with a Protective Portfolio, self-insuring against surprise expenses with an Emergency Fund, and why it’s a good idea to use co-operative style financial institutions (like credit unions and Vanguard).
In the final few articles we’ll talk about specific investment vehicles that make sense for folks in retirement. (This is true for portions of working folks’ investment portfolios as well).
First up: Money Market Accounts and Money Market Mutual Funds. These account types are quite simple to use and work very much like savings/share accounts, so do not be intimidated. They are cash products (just like your savings/share account) but can have (slightly) higher interest rates. Money Market products can be a good place to stash your Emergency Fund.
There are two types of Money Market products: Money Market Accounts and Money Market Mutual Funds. We’ll go over the subtle differences now.
Money Market Accounts
Money Market Accounts are available at your credit union or bank. Like checking and savings accounts, these accounts are federally insured (in the U.S.), just look for NCUA/NCUSIF in the case of credit unions or FDIC in the case of a bank. They tend to have higher interest rates than savings accounts (though not always, it depends on current economic conditions). They also sometimes come with debit card and/or check-writing options, similar to a checking account.
Money Market Mutual Funds
Money Market Mutual Funds are, as the name suggests, mutual funds made up of various cash products. [A mutual fund is an investment vehicle or portfolio (think, a basket) containing multiple investments (think, eggs)]. They are available mainly at investment firms (usually not at credit unions or banks), so are generally not Federally insured.
Money Market Funds tend to have slightly higher interest rates than Money Market Accounts (again, not always, so do your research and shop around). They also come in a variety of types, such as Prime (aka General Purpose) or Municipal (aka Tax-Exempt).
Why Money Market products?
A Money Market Account/Fund is a great place for parking cash that you need to get to quickly, such as your Emergency Fund. You can quickly transfer money to your checking account, in a matter of seconds if you have online account access, which nearly all banks, credit unions, and investment firms offer. Also, many come with debit card or check-writing options.
They can also be good places to stash some of your cash if you are very risk-averse. Maybe you would sleep better if you had a year or two of your living expenses tucked away. Don’t forget, you’re retired. You don’t have much time to make up for any losses you might take when the market dips. (This is not necessarily the case for younger, working folks, who have more of a time cushion). If you were retired back in 2007 and had some of your investments safely out of the stock/bond market, you would have felt much better in 2008 when the crash cut retirement savings values considerably. And make no mistake, the markets will dip, sometimes to crash levels.
Finally, Money Market Accounts/Funds won’t give you amazing returns. But, they tend to have better returns than your average savings/share account. And, since they work similary and are widely available, they are easy and convenient.
I’ll just add: I have both a Money Money Account and a Money Money Fund. They are my go-to account type for my Emergency Fund. (Why do I have both? Since I am an independent contractor, I have fluctuations in my income. Therefore, I sometimes have to tap my Emergency Fund if I have a severe dry spell with work. I therefore have some of my Emergency Fund in a Money Money Account at my credit union, while the rest sits in my Money Market Fund at Vanguard. This is not usually something most retirees [or workers with a steady paycheck] will have to deal with.)
–Good luck, we’re all gonna need it!
Feature Image Credit: QuinceMedia