How to Increase your Wealth with Money Markets

In the financial market, too much emphasis is being placed on stocks and bonds. Why not? Such financial tools pose great earning and growth potential and could result to enormous wealth in the long run. However, with such attention given to stocks and bonds, money markets seem to have taken the back seat. Money markets are very underrated, and in fact are often misunderstood financial tools.

Just like stocks and bonds, money markets have great growth potential and could also result to huge amounts of wealth. Generally, the difference between money markets from other investments such as stocks and bonds is that money markets are normally of shorter duration. In fact, the duration of money markets are much shorter than stocks and bonds.

Money market investments generally extend to a year at most and many of them have spans of less than a year. Among the types of money market investments are certificate of deposits (CDs), treasury bills, banker’s acceptances, commercial papers, treasury notes, federal funds and repurchase agreements (repos). These kinds of investments are generally involved in borrowing, lending, buying and selling of short-term securities.

Money markets are considered less risky compared to stocks and other financial tools because they are very liquid, and their duration is short. Because of its short duration, growth could be short lived, but would be significant enough. Here are some ways how to increase your wealth through money markets.

The first is to simply invest in a money market and reap its rewards when an investment matures. Since the time frame is one year maximum, you can immediately enjoy its benefits. Money markets basically work and function like other investments, but the difference is that it has a shorter time frame. You can earn interest through loans (like bonds) and dividends.

Second is to sell a money market instrument to a different party. Because of its high liquidity, you can ideally sell your money market investments to others easily and with profit. You can hit two birds with the same stone with money market investments because other than its growth through dividends and interest, you can also sell it higher as long as the buyer agrees and gives in to the selling price.

A third way to make wealth in money markets is simply to reinvest it or continue to invest in the same kind of security over and over again. Once a certain money market investment matures, find another one and put your money in it, including both the capital and the profit from the previous investment. Since money market investments are relatively safe and ensure a fixed and regular return, you are certain that your money is growing well. Though it may not be as much as the potential that the stock market promises, it is at least more than decent to give good financial growth.