‘‘The best time to plant a tree was 20 years ago. The next best time to do so is now.’’ – Chinese proverb.
When you are young, planning for the future can appear unnecessary because, well, the future is so far away. However, many of us end up procrastinating until it is too late and retirement finds us unprepared. How do we avoid this? Simple; start planning early. Investing is a sure fire way to build yourself a nice nest egg, however, a number of investments can be inaccessible to a majority of the population as they require a large amount of capital. Fortunately, money market funds are a great option for individuals who do not have tons of capital at their disposal.
A money market fund (MMF) is a type of a collective investment scheme that allows investors to pool their resources and invest in instruments that provide higher returns than interest-bearing bank and savings accounts. Money market funds are managed by fund managers, whose expertise and experience benefit the investors. How will a money market fund secure your financial future?
1. Low risk
The goal of planning for your future is to strike a favourable balance between the safety of your principal and generating an adequate return from it. One of the key features of MMFs is that the principal is relatively secure. Unlike other investment vehicles such as equities that are typically high risk, a money market fund bears low risk and thus more secure.
2. High returns
Money market funds generally offer higher returns than interest bearing savings and bank accounts. A MMF compounds your interest daily, meaning you have potential to earn more. In Kenya, money market funds such as the Cytonn Money Market Fund offer competitive interest rates.
3. Economies of scale
A money market is by definition a collective investment scheme that pools funds from several investors. As a result, it can put money in investments that would otherwise be out of reach for individuals. Thus, they benefit from the economies of scale created, and these advantages in the form of cost savings and attractive returns on investments are passed to the investors.
4. Professional management
Professional fund management relieve investors of the burden of research and decision-making. That then leaves the investors free to concentrate on other pursuits.
Money market funds are typically highly liquid. This means that when required, you can get your money within a few business days. While this is one of the many attractive features of money market funds, it could derail your planning for your financial future. However, with some discipline, this should not be too big of a problem.
Ranging from the relatively high levels of investment security and rates of return, the low investment risk, zero entry fees and benefits of professional management, money market funds are a powerful way to secure your financial future.