A Money Market Savings Account Can Lose More Than It Gains   by Jeremy Winters

in Investment / Wealth Building    (submitted 2011-04-14)

The selling point for the money market savings account has consistently been safety and stability. Because of the recent downturn in the stock market plus a general skittishness after the worldwide crisis, some people are falling back on banks as the safest place to keep savings. Before you join the trend, however, think about this: banks are offering really low interest rates these days, so that after inflation and taxes, the value of your money will actually decrease with time.

Almost everyone would like safety, however is an account that loses money safe? Although money markets tend to be nevertheless considered to be safe-bet investments, they are in fact not much better than placing your money inside a mattress. If we identify a safe investment as one that protects your funds even while providing for at the least some positive growth, than a money market savings account falls short.

The historical past shows us that downturns in the stock market are common. Also historically speaking, the farther it falls, the higher it gets back up once more. While savings accounts seem like a safe harbor in a storm, what they actually do is to take your funds out of circulation exactly at the wrong time. In some cases we all have to cut our losses and run, yet the shrewd money stays in the game if it can.

One valuable strategy to avoid the stress and anxiety that causes many individuals to run for the hills will be to constantly keep in mind that investing is a long term affair. Investment money need to be savings you don't expect to require for ten years at the very least. Simply by only risking money that falls into this category just about any investor can relax and calmly wait out fluctuations in the market.

Studies prove that a diversified portfolio which contains a strong base of safe investments will generally supply growth through the long term. It's commonplace for well known stocks to turn around and go through growth even following lengthy periods of reduced activity or downturns. It is the dynamics of the stock market to go up and down and then up again, and the patient investor will most often be the person who is in the right place once the tide turns.

A money market savings account will always be a lot less volatile than the open market, but in exchange your money remains inactive. Additional risk is the cost of higher returns, yet averages show that the advantages commonly outweigh the risk. By using the 10-year rule and just utilizing cash that you can afford to leave alone, investing in the stock market is still the most effective way to make your money work for you. One thing is sure: risk nothing at all and you gain nothing. Money markets tend to be "safe," but they offer you absolutely no dynamic growth, and they won't allow your money to reach its total potential.

About the Author

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