Now that we have a solid base to move to, let us look at the different types of accounts which we can put our earned money into. A money market account differs from a traditional savings account or a certificate of deposit (CD) in certain fundamental and important ways. They offer certain advantages that certain individuals may wish to take advantage of, but understanding their peculiarities is an important first step. During this period of extreme economic uncertainty, securing additional yield is important wherever possible, and a money market account is one such option.
In the U.S., the money market describes the market for investments with maturities under one year. This market includes treasury bills (T-Bills), corporate paper, overnight repurchase agreements (repos), and Eurodollars. Each of these instruments matures in less than a year and are considered highly liquid. The return they offer, which must be compounded over the course of the year (the capital must usually be invested multiple times to achieve this rate), is slightly higher than the rate offered in a traditional savings account. In most cases, an individual has a number of choices of what type of money market fund they wish to invest their money in as the underlying investment of the account. These funds manage the aggregate cash position as a pool which allows the manager to account for regularly changing cash needs of the various participants.
Other features that are common to money market accounts include the ability to change easily from one type of money market fund to another, minimum balance requirements, and the ability to write a limited number of checks from the account each month. As with most mutual funds, most money market accounts allow the account owner to make adjustments to the investment fund on a daily basis. These accounts usually require a minimum balance of $500 or more – these requirements may differ in cases where the account owner sets up monthly direct deposits into the account. Furthermore, in most cases, the account owner can write up to two checks per month out of the account at no additional fee – in this respect, a money market account is different from a traditional saving account which rarely has check writing ability and pays lower rates of return.
Money market accounts differ from a CD in that CDs have minimum investment periods before which large penalties are assessed. This allows for smaller denominations because the bank knows that the capital will remain in place until a specified date; for this reason, CDs tend to pay slightly higher rates than money market accounts. While all three options have advantages, a money market account provides a good blend between flexibility and return.
So, the markets have responded very well to the new that Donald Trump will be our next president. The Peso did crash momentarily, but overall this has been a great time. So, understanding why I am so anti-debt is something which has been asked. The issue with debt is interest, which can truly be described as great servant but horrible master. Normally, interest is what someone charges you for the utilization of the money. One of the most common enemies of true financial security is the credit card, but how many of you know the true cost of a credit card. Lets say you have a normal credit card, carrying a balance of $10,000. You pay the minimum payment every month, but really just count it as another bill. That minimum payment is probably around $200 dollars if the card has a 16.7% APR, but when you look at the long run, you are spending $1670 dollars every year just on interest, paying down the principal by a mere $330. I know I could really use the extra almost $2,000 dollars a year. Utilizing the debt snowball model, you can do amazing things to reduce or eliminate debt, within a short time span. If you have any questions let me know.
Donald Trump won. That is something I thought I would not ever write, it happened. School is crushing me right now between it and many of my volunteer activities that I am trying to get off the ground. I have started muting some of the comments on the page. Hope all is well. I will be back a little later this week, just wanting to see how the markets react.
So this post will be about the conference I attended in London. It was a quick trip, I flew out of Stuttgart, which had a horrible delay, meaning I got to London at approx. 12:30. The 4 hours of sleep was quite welcome and stayed in Sussex Garden, which is an interesting portion of London at that late. The conference was on Securitizations, which are a relatively new financial tool. Only introduce in the past 75 years. There were many issues that were discussed, but the main thorn in everyone’s side is that many of the ideas of Quantitative easing have caused more than a few bubbles within the bond markets. Basically, the overall topic was how to correct this, which is a few pertinent question as the markets have not settled due to the uncertainty of the US election. I am not going to sport in favor of either candidate. What I will say is that the student loan market, auto loan, and online loan markets are all showing symptoms of a bubble, including a rise in the asset price that back these bonds, QE is exacerbating the situation, due to the massive amount of government buy outs of bonds.
So, as this high period of uncertainty is coming up, there is an old adage, of which, I follow. “Buy when there is blood in the streets even if it is your own”. During and after the election stocks and other securities will fluctuate, if you are into investing, it would be a good time to talk with your financial adviser. I will not ever pitch for an investment, but, if you are debt free and looking for money making opportunities your various financial advisers would be will to discuss them with you. If you have a question about account types or times, I will be talking about them as well.