Education. Knowledge is power. Especially when ACTIONED!
What is ‘the Money Market?’
Cash funds can contain many different forms of cash or cash equivalent investments. The key characteristic of these is that capital is not exposed to investment risk but can be exposed to default risk, the sole return is interest with no potential for capital growth and they are repaid in full at maturity. The money market is the market for these short-term investments. The investments traded are generally very safe but with a low interest rate. This makes them most appropriate for temporary cash storage or short-term investment periods.
Deposit Accounts are effectively current accounts held at a banking institution allowing money to be
accessed at very short notice or on demand and paying interest. The money market generally uses cash equivalents or tradeable securities rather than deposit accounts.
What are Cash equivalents?
Cash equivalents are assets that are highly liquid and can be easily converted into cash. Cash equivalents are distinguished from other investments by their typically short-term existence. Many of these cash equivalents mature within 3 months. They are collectively grouped under the term Commercial Paper.
Einstein reportedly stated: “Compound interest is the eighth wonder of the world. He who understands it, earns it... he who doesn’t... pays it.” Most people appreciate the importance of paying off debts to avoid the interest rolling up. But the power of the compounding concept is often overlooked by those who need to create wealth for the future.
The secret of investing success lies in the way that investment returns themselves generate further gains. Reinvesting any income generated, rather than paying it out, means that returns in the next period are earned on the invested sum plus the previously accumulated income. It’s very much like a snowball effect: once it’s rolling, the more snow it collects and the bigger it gets.
Reinvesting dividends paid from company shares provides a powerful example of how compounding can boost investors’ total return. Figures from Barclays show that a notional £100 invested directly into UK shares at the end of 1945 would now be worth £10,933 in nominal terms, without the income reinvested; but would have grown to £238,690 if the dividends had been reinvested in more shares. However, past performance is not indicative of future performance.
Investment Material Brief
Few reading links about investment and the stock market:
Make Investopedia your friend. They have a good view, definitions and explanation of investment and business terms. So if you come across a term or concept which does not make sense, use it to search the term:
They also have a basic tutorial on stocks which you can peruse: https://www.investopedia.com/university/stocks/
Learn To Earn by Peter Lynch
The Millionaire Next Door by Thomas J Stanley
The Intelligent Investor, Rev.Ed by Benjamin Graham, Jason Zweig and Warren Buffet A Random Walk Down Walk Street by Burton Malkiel
Thinking, Fast and Slow by Daniel Kahneman
Are you ready to take ACTION!
Sign up here if your ready for financial freedom.