If you don’t have $1000 available to open a money market fund, you might look into money market funds that waive an opening minimum deposit if you set up an automatic savings plan and have money moved from your bank account to your money market on a consistent (and automatic) basis. The minimum amount to save on an automatic savings plan will vary from one fund to another but most require at least $50 per month.

Another option for using money market funds for individuals who don’t have a minimum deposit is to use Paypal. Paypal considers the money saved in your Paypal account to be part of money market funds (if you select that option) and the yield varies depending on the market – just like other money market funds. Visit www.paypal.com for more information about how you can opt to include your Paypal account balance in the mutual fund.

Safety of Money Market Funds

A money market fund is not federally insured by the FDIC the way a savings account is. Despite of the lack of insurance, money market funds are considered to be an extremely safe investment. Money markets started in the 1970′s, and out of the hundreds of funds only 2 have ever had financial trouble.

The reason money market funds are considered safe is because regulations only require that 5% of a fund’s assets are held of any on institution other than the obligations of the US government. The safest money market funds are those that only invest in US securities. In exchange for the increased safety net, you’ll earn a point or two less interest.

Tax-Exempt Money Market Funds

The dividends earned on most money market funds are completely taxable but there are some funds that invest in tax-exempt securities which means their dividends are not taxed by the IRS at the federal level. You do still have to handle state and local taxes on these dividends. It doesn’t make sense to buy tax-exempt funds unless you are in a high tax bracket because their yields are much lower than those paid by taxable money market funds.

Money Market Funds was created by and is property of American Consumer News.

Life cycle funds are mutual funds that offer investors a quick way to create a diversified portfolio.  Life cycle funds already contain a mix of stocks, bonds, and various assets- so when you contribute to a life cycle fund you have an instantly diversified portfolio containing small cap stocks, international stocks, bonds and others with your single investment.

The reason these funds seem to have “intelligence” is because they change their investing strategy without you having to make the changes, based on where you are financially and how close you are to your retirement. 

For example, if you want to retire in 10 years, you would invest in a life cycle fund with a ten year term.  At first, the fund would invest aggressively, but the closer you get to that ten year target mark, the more conservative the investment would become.  You don’t have to do anything to change it so it’s the ultimate “set it and forget it” investment- much like a 401K.  The benefit though, is that the life cyle funds are “smart enough” to change investment strategy for you.

Funds that change based on age aren’t entirely new- the educational 529 plans work on a similar premise.  The life cycle funds may be the perfect solution for people who aren’t into following the daily changes in the market but some people say a cookie cutter approach to investing and planning for retirement isn’t the best solution.  Life cycle funds, and similar funds that adjust according to your planned retirement age don’t take into consideration the different financial needs that people approaching retirement may have.

However- if you’re like the majority of investors who want to put aside some money towards retirement but can’t afford to pay for financial advice, using the “intelligence” of the Life Cycle Funds may be a perfect solution for your investment needs.

As with any investments, you should take the time to track their progress on a regular basis.  Once a month, make a date with yourself to go over your accounts.  How much money did you contribute?  Is the fund showing the right amount of money?  How much money is currently in your accounts, and should you increase your investments to reach your goal or can you put in less if your funds are doing better than you thought?

Investments With Artificial Intelligence was created by and is property of American Consumer News.