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Ask Dr. Don
By
Don
Taylor,
Ph.D.,
CFA
•
Bankrate.com |
Short-term investing
Dear Dr. Don,
We sold some land, and need your advice
on where to put this money. We will build a new home next year,
and will need the money at that time. We want to put the money into
something that will have a high interest rate, but yet will be able
to get it out next March. Please help us. Also, what is the difference
in money market investments and CDs?
Janie Jargon
Dear Janie,
When you're investing for a short-term financial goal, you
don't want to take on much risk in your investments. The more conservative
your investments, the lower the expected return. Taken together,
that means that safety of principal is more important to you than
the investment's expected interest rate.
When I wrote this reply you could invest in a one-year
certificate of deposit and earn 3.25 percent by using Bankrate's Best
Rates feature to find a high-yielding CD. You can use the same
feature to find the best rates in your market.
A money market investment is a short-term debt investment
that matures in less than 13 months. CDs can be considered money
market investments if the term of the CD is less than 13 months.
Money market mutual funds are mutual funds that invest
in short-term debt securities. Even though they can invest in longer-term
money market debt, a money market mutual fund will have weighted
average maturity of 90 days or less.
A money market account can be FDIC insured while
money market mutual funds are not FDIC insured, but money market
accounts are limited in the number of financial transactions that
can take place in the account each month. Money market mutual funds
may charge transaction fees, but since you don't expect to generate
a lot of transactions in the account, that shouldn't be a concern.
-- Posted: Feb. 21, 2002
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