How to Pick a Money Market Fund

Selecting a money market fund can be quite the search, but once you have found a great fund, you will find huge returns on your investment that will make the search well worth it. However, there are some things that you should know that will aid you in selecting a money market fund with the least possible stress.

The first thing that you obviously need to do to purchase a fund is to find one and do your research on them. I am going to go over the general steps that I take when I am looking at funds for purchase.

The first step that I take when looking for a fund are the fees associated with that fund. There is nothing that I hate more than finding a fund with a great track record of growth that turns out to have fees that just make it sub par at best. This is why I separate my funds according to fees first. This way I will make sure that I am only looking at the funds with the lowest fee structure. Once I have done that, I can start to narrow down my choices even more.

The next step is to look at performance over time. I generally go back over the last 2 years to start with, then follow it up to current. As markets are bumpy at times, don’t always expect a perfect upward trend. If you could expect this then everyone would be investing. The most important information is to consider the last 3-6 months, however, if they have a poor track record up until then, they could easily go back to a similar trend. For this reason I normally consider their uptrend an anomaly and avoid that fund altogether. Whatever funds seem to have the most consistency are the ones that I choose. I set those aside from the rest.

Now, I take a closer look at those that run the fund. This is extremely important for the future success of the fund. I look at everyone involved in the process and try to find background information. This helps me to narrow down the funds somewhat more. From this point, I generally have 3-5 funds that I am interested in.

Now you have to determine what type of investment style you want. I personally like undervalued small companies, because I feel they have the best chance for growth, however they also offer the greatest risk as a smaller company has a greater chance of going out of business. This is why it is important to have a high quality management team for the fund you choose. Out of those 3-5 funds, if one to two of them are undervalued investment funds, then I will invest in both of them. If none of them are, then I select large companies with fast growing stocks. I feel there’s little risk here, but still a good chance for growth, even if it isn’t as good as it would be for the small businesses.

Now, after all that work, I have my funds. Each person will establish their own method for determining which funds to purchase, which obviously you’ll discover over time and success. Just keep in mind that without your research, you are really just reaching into a barrel and praying.