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Author: TMFDj111 Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121219  
Subject: Re: MMF - Yields vs Maturity Date: 12/6/2002 6:50 AM
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had a couple questions about Money Market Funds

I assume by "money market funds" you mean money market mutual funds. If so, then --

Here's a link to an explanation of money market mutual funds:
http://www.bankrate.com/clst/news/money_market/19990202.asp

One of the more important factors you should keep in mind are money market mutual funds are NOT insured financial products, but they are flagship products for their sponsors. In the last 50 years or so, only two or three money market mutual funds have failed, and in every case the sponsors made the funds whole again. Bottom line is while you shouldn't ignore safety, safety probably isn't one of the issues you should spend a great deal of time worrying about when comparing money market mutual funds.

Most people will tell you to choose money market mutual funds based on high yield. However, I think a better strategy is to pick money market mutual funds based on low costs. There are all kinds of games fund sponsors can play to goose yields temporarily, but when the games are over, investors are left with poorly performing funds. Low costs are low costs, and low costs beget high yields. Personally, I use Vanguard Money Market Prime (http://www.vanguard.com/).

Today interest rates are so low that the difference between taxable and tax-exempt money market mutual funds is theoretical. However, eventually interest rates will return to normal. In my opinion -- and I emphasize this is a very personal opinion -- unless you live in a high tax state, for example, California, New York, New Jersey, or maybe Pennsylvania, the tax exempt money market funds are more trouble than they're worth. Of course, your personal financial situation my suggest tax-exempt money market mutual funds are worth your time, and I'm confident other replies to your post will take issue with this point.

If you shop at a bank, or perhaps a savings bank or credit union, some teller may try to sell you on the bank's "money market fund." Most likely, the teller is offering to open a money market deposit account for you. Money market deposit accounts are insured financial products, and their yields usually are a little better than the bank's standard savings accounts, however their yields usually are much worse than yields available from money market mutual funds. On the other hand, it's possible the teller is trying to sell you a money market mutual fund from the bank's brokerage division. If so, then it's almost a certainty the bank's money market mutual fund is a high cost, low yield fund, and you should compare the fund's costs with other funds available in the marketplace before you make a decision.

Certainly you're welcome to post any question you like to any discussion board you like. However, I suggest you'll get a broader range of replies to basic questions from TMF's Ask a Foolish Question discussion board. Another board you may want to check for information about money market mutual funds is TMF's Bonds & Fixed Income Investments discussion board.

Ask a Foolish Question
http://boards.fool.com/Messages.asp?bid=100000

Bonds & Fixed Income Investments
http://boards.fool.com/Messages.asp?bid=100135

David Jacobs
TMFDj111
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