How to Invest in Money Market Funds

Within the wide array of choices that investors have for putting money into yield-producing instruments, some might be looking at using money market funds to grow capital. Money market funds are a specific type of mutual fund that focuses on short-term bonds to produce yield. These relatively safe investments can compliment an overall portfolio that hedges against risk. Some basic steps will help beginners invest in money market funds in order to realize long-term financial goals.

Steps

1. Collect capital. In order to invest in money market funds, you'll need your capital to be in one easily accessible account. Scrape together all of what you can afford to invest for a certain time period.
2. Connect with a bank or brokerage. In some cases, a bank, or a financial planner connected to a banking institution, may be able to facilitate an entry into money market funds. In many other cases, you will need a designated broker.
3. Learn about money market funds. Knowing more about the way that these funds work is critical in order to help beginners make good, informed decisions about future investment.
   
   • Find out the difference between money market funds and money market accounts. Banks often offer customers money market accounts, where the money that they put in will earn more interest than it would in a conventional savings account. By contrast, money market funds are oriented like mutual funds and may have different risks.
   • Understand the goal of money market funds. These funds seek a net value of $1.00 for stability. That means limited gains as well as limited risk.
4. Research money insurance for money market funds. Recent reports indicate that in the commercial crisis of 2008, several money market funds lost value. Finance pros refer to this as "breaking the buck." Apparently, recent government measures have created insurance for money market funds that is similar to FDIC insurance for regular savings. However, the investor should research this further, asking pointed questions to determine how well a money market fund is insured.
5. Buy into a money market fund. Your online brokerage tools or other services will help you actually make the transaction to move a specific amount of money into money market funds.
6. Track the investment. Like other funds, money market funds should have tracking information available from the brokerage or institution that sold them. Use these to understand how much gain your funds are accruing to actively manage your investments over the long term.
7. Use records for tax filing. When it comes time to pay taxes, an investment in money market funds might trigger additional capital gains tax. The investor may need items like the original cost basis to accurately record gains for taxation.

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