Investment Funds

Investors who have relied on the security of a guaranteed money market mutual fund may be disappointed to learn that their investments are no longer government-backed. On Friday, September 18, 2009, the Obama Administration put an end to a program that was to guarantee as much as $3 trillion in money market mutual funds. The program ended on schedule.

At the height of the financial crisis in September 2008, a large money market mutual fund "broke the buck," which means the value of its shares dropped below $1 for each investor dollar that was put in. Then investors saw major losses when the Primary Reserve Fund said that $785 billion that it invested in Lehman Brothers (which went bankrupt in the summer of 2008) became worthless.

Money market mutual funds are popular financial management tools on Wall Street because they are viewed as safe (funds typically invest in secure debts like short-term commercial bonds and Treasury Bills) and easily accessible with better returns than traditional savings accounts. They are different from money market accounts, which are more like high-yield savings accounts and are found in banks and credit unions.

While $3.5 trillion is normally held in money market mutual funds, with the news that the guarantee program would be ending, that figure dropped by $62 billion a few weeks ago. Now that funds have lost their "insurance policy" per se, investors are expected to begin moving their money to the "sidelines" or to even safer options like CDs, which are still FDIC insured for up to $250,000 until the end of the year.

Do you currently have any money market mutual funds? If so, how has the loss of the guarantee affected your decision to stick with them?

In the Financial World, investments are financial products or financial items that have value that is expected to produce favorable future returns for the investor over time. To an individual, an investment is anything that makes you more money down the road, increasing your net worth or equity. Financial investments can come in various forms. In the general business world, investments can be equipment or inventory. In personal finance, you often hear real estate or deposit accounts (CDs, money market accounts) used as investment vehicles. However, to a more sophisticated financial advisor or investor, there are 4 major types of investments: Mutual Funds, Stocks, ETFs (Exchange Traded Funds) and Bonds. To an investing newbie, these terms can be very confusing. We will try to break them down into simple English for you to understand.

Where Do these Investment "Products" Come From?
Investment management companies (also called brokerages) create Mutual Funds and ETFs for their clients (you, the investor). Stocks and Bonds are created by regular public companies (like Google or Microsoft) as a way to raise money for operations. Bonds can also be created by government agencies to raise money.

How Is Profit Made from the Investments?
Mutual Funds, Stocks and ETFs are products traded (basically meaning bought and sold) in the equities market (also known as the stock market), such as the New York Stock Exchange and NASDAQ (National Association of Securities Dealers Automated Quotations) the two biggest equities markets in the United States. As the investor, you make profits based on whether the value of the investment increases over time, or from the time it was bought to the time it was sold. Bonds are not traded in the equities market because there is no central marketplace for bond trading; rather, they are traded through individual dealers. By investing in bonds, you make money when the company or agency pays you interest dividends at timed intervals or at maturity when they repay you for the bond plus any interest.

Let's take a deeper look into the 4 types of investments:

• Mutual Funds:
  A mutual fund collects money from its shareholders into a pool, and invests that money in various financial securities (such as: stocks, money market instruments, bonds, etc.) in order to meet shareholders' investment goals. As an investor, you will then be paid dividends (or the profit made by your shares in the fund). Shares of a mutual fund cannot be transferred between shareholders; instead, if a shareholder wants to sell his share, he has to ask the fund to redeem it for him; if someone wants to buy more shares, he has to ask the fund to issue a new share for him. Typically, the fund will issue or redeem shares on request at the end of each day.
• Bonds:
  Bonds are securities issued by a business that represent a debt owed by the business to the bondholder. Bonds give the holder the right to receive interest and the final payment of the debt at maturity (the time required to hold the bond before the full interest amount will be paid).
• Stocks:
  Stocks are securities issued by a business that represent an ownership share in the business. Stocks give the holder the right to receive dividends (or the profits made on the shares), and, if the business is sold, to get the corresponding share of the purchase price.
• ETFs:
  ETFs are similar to mutual funds, except that they allow shares to be traded between shareholders (through a stock exchange). This means an investor can buy and sell an ETF share at any moment, just like he can buy or sell a share of IBM stock.

ETFs, also known as Exchange Traded Funds, are investment vehicles traded on stock exchanges. They are similar to mutual funds because they offer an undivided interest in a pool of financial securities; however, they are able to be traded by individual investors rather than having to be handled...

Mutual fundsare companies that pool money together from various investorsthen invest that money in various financial securities (stocks, bonds, money markets, additional securities and assets,or maybe a combination of all of these investment types). Also known as open-end companies, mutual funds...

In good times and bad, everyone wants to make as much money as they possibly can. More money means more choices, more security, and more freedom. By making money we expand our world. In that same spirit, we want to put that money to work for us so that we don't have to worry about our financial...