How To Diversify Between A Money Market Account And Other Investments

As investors look to create more positive cash flows with their investments, financial planning becomes crucial to their success. Typically, investors will look at their portfolios at the end of each year, with periodic checks in between. They will analyze the performance of each market they’re invested in. Stocks, bonds and their money market accounts, in order to see where future funds would be best allocated. It’s also the time when investors will determine what, if any, funds need to be sold and where to invest the proceeds from the sale. And then the decision comes as to where to invest future money. While a money market account is always a safe bet, albeit a low rate of return, younger investors may want to see their investments grow more quickly, and are more liable to take greater risks.

 The biggest key with any investment portfolio is balanced in accordance with one’s age. For instance, an older investor who is close to retirement is much less likely to place undue risk on his current investment, opting instead for safer returns that have a greater chance of predicting future income. In this particular case, weighting the portfolio with more funds invested in a money market account makes more sense. For an investor who is younger, they have many more years to grow their portfolio without having the need to draw out any money, so they will be more prone to taking a higher risk. Therefore, they will be much more liable to invest with a heavier balance in stocks rather than in a money market account. Either way, it’s important not to be too exposed on either end of the spectrum. Money market funds are extremely stable, and for investors during tough economic times, it’s a great place just to park cash when the stock market is in a volatile phase. Bond funds offer a bit more yield than a money market, however many municipal bonds are taxable, and with many state and local budgets in dire jeopardy, the credit quality of the bonds themselves come into peril.

However your portfolio is allocated, it’s extremely important to maintain a sense of balance that makes sense in the long run. Even with the S&P 500 stocks performing well, any type of economic stress can quickly change fortunes. Keeping a strong presence in your money market account is never a bad play with any portfolio management.