Investors who have been slammed from investing in stocks are now asking should they be playing it safe with the money market accounts instead; unfortunately this is not an easy question to answer. Because the financial market in general is rocky, some may ask individuals looking to invest to shy away from it all right now. However, when the smoke clears, one option may be the clear winner for some, so to gauge which is best for you, let’s take a look at some characteristics of both.
Traditionally, getting involved in money markets is considered a way to invest while playing it safe. However, by taking this route, investors can’t celebrate a high rate of return. Because it is a form of lending money to a financial institution, it is viewed similarly to loaning money to your friend who then offers to pay you back with a low interest rate for the favor. Whether you’re getting into CDs, T-Bills, or Commercial Papers (for larger entities), you will only be able to take advantage of a low interest rate that was predetermined when you invested, so you’ll only gain a small amount for what you’ve put in; however, for the most part, it will be guaranteed.
Investing in stocks, on the other hand, is a different beast for investors because you are buying shares with companies in hopes that you can make large gains based on the number of shares you purchase, and at what price you purchase them. When going in, you know that you are taking a chance that the company can lose money or even go bankrupt, resulting in you losing your own cash. So it is a definite risk. However, if you (or your investment manager) are wise enough to buy shares in a company as it is getting started and its share prices are low, if the company’s profits soar, you can become instantly wealthy.
Deciding whether investing in stocks or putting your cash in money markets is right for you can be tricky, but many investors face this dilemma every day. Ultimately, making the decision relies heavily on your long-term financial goals, the amount of cash you have to “play” with in the event of a loss, and how much of a gambler you are.