Money market is a good place to invest……

Short term solution in the current environment

As our economy is technically in a recession investment options are very challenging. A great place to invest in the short term is the money market. Accounts can be opened at all financial institutions such as your local bank. Why?

Well because it is very difficult at the moment to get a return of around 7% with extremely low risk of losing your capital. I say low risk because there is a very extreme possibility that  the bank where your investment is made  could run into trouble as did in the case of Africa Bank.

What is it all about?

A money market account trades in bank instruments called “paper”, such as Treasury bills, Banker’s acceptances, certificates of deposit, bills of exchange which all trade in a period of less than a year.
The money market trades at the so called ‘interbank’ level where banks lend and borrow to each other. These wholesale rates are higher than the retail rates offer by banks on their savings accounts.

images-39

 

 

 

 

 

 

Money markets do better when interest rates rise

The current rate varies between as the underlying instruments reach their varying maturing rates. These instruments are also dependent on the interest rate cycle. As interest rates rise so too will money market rates.

Make sure you understand the actual rate offered

The nominal rate is the actual rate of return – normally annual. The effective rate is the rate achieved by reinvesting the interest received and compounding it back into the investment.
Example:
Nominal rate of 7% per annum yields and effective 8.25% over a 5 year period.
If you draw out the interest then you do not get the effective rate. You actually get the nominal rate.
Real rate is the adjusted rate received after subtracting the inflation rate.

In an environment where cash is king money market accounts are very useful parking bays.

Are you worth more alive than dead?

Don’t forget dependents                                                                                              Whilst you are alive you take into account all that you own and deduct all that you owe. You then embark on a financial journey to own more and owe less. If you die, however, you need to also include a provision for your income which your dependents rely upon.

The sum total is the essential amount of life assurance that you will need to have in place in the event of your death.

Whilst you are alive you should then aim to payoff the things that you owe and then build up a nest egg that you and your dependents can live off into the future.

Life assurance is the a2166 way to provide for dying too soon before you have had the time to accumulate enough pay off debt and leave behind enough to support your dependents.

The way forward                                                                                                               So it stands to reason that you need to take snap shot of where you are right now in relation to your debt and your monthly lifestyle needs.

You then put in place a life assurance policy to cover yourself in the first instance.

You then embark on a dedicated financial journey to wean yourself off the dependency of the life assurance policy. The more your worth improves the less life cover you will need.

Aim to accumulate enough while you are living which is what financial independence is all about. Work on being less dependent on life assurance.