Depositing one's money in cash or a certificate of deposit (CD) was normally considered to be a stupid proposal in the 1990s. This was because in any case a CD, a short- or medium-term, interest-bearing, debt instrument insured by the Federal Deposit Insurance Corporation offered by most banks and monetary organizations, only paid an annual interest of merely five per cent. In those days, people turned frivolous when they found the worth of their equity escalate by large sums. In such a state of affairs, a mere five per cent earnings really looked like a terrible ridicule or joke.
Nevertheless, when people retained their preferred stocks for long enough, the joke boomeranged. This was a fall-out of the reversal witnessed in the stock markets by 2001. Scores of depositors who had hanged on to their preferred stocks suffered huge losses and many of them lost almost all their savings. All of a sudden, the certificate of deposits that yielded five per cent yearly earnings as well as the outdated bank savings account that provided just one per cent return appeared to be excellent ideas that attracted a lot of people. Although one per cent return on any saving is actually an appalling scheme, but people considered it much better in comparison to virtually squandering their money in stocks.
People who have a inclination for savings may also invest their money in an open-end mutual fund which invests only in money markets (money market fund) that gives a slightly higher return compared to the banks. It may be mentioned here that money market funds usually invest in interim securities such as certificate of deposit (CD) and commercial paper (an unsecured obligation issued by banks to finance their temporary credit requirements). However, the money market funds do not have any indemnify. In addition, one is also able to endow his or her money straight in the United States Treasury bills that provide the additional security benefits as they are endorsed by the United States government.
If you have some surplus money, you may well invest it in a money market as it will shelter you from the cruel bear markets (an extended phase during which investment prices plunge, together with prevalent cynicism). Apart from investing in a money market, you may also utilize your surplus money to purchase your preferred stocks and mutual funds. Moreover, it is essential to always have some additional money set aside for use during any urgent situation or when you may have to encounter some unforeseen expenditures. In fact, there is no convention that suggests that you should invest all the money that you have on yourself in the stock market. Remember, it is neither wise to do so.
