All money market funds are not the same. It is important to understand the differences and to choose a fund that best matches your needs.

Determine Your Money Market Fund Allocation

Before you choose money market funds, it is important to decide the role they will play in your portfolio. Your money market fund allocation should reflect your investment time horizon; your specific investment goals which may include retirement, retirement income, or tax-free income; and your tolerance for risk.

Time Horizon This chart can help you determine an appropriate allocation for short-term funds while also recommending allocation levels for investment-grade, high-yield, and international bonds to help you meet the needs of your individual investment time line.

Treasury-only Funds

These funds are made up of Treasury bills and U.S. government agency obligations that are backed by the full faith and credit of the U.S. government. Because the credit quality of these funds is the highest available, they usually offer lower yields than general money market funds.

Who should invest? Investors with a very low risk tolerance for their shorter-term goals and who are willing to accept a lower yield at times.

General Funds

The majority of money market funds contain a wide range of money market securities. They do not carry the same high level of credit safety as Treasury-only funds but are generally considered to be low-risk investments.

Who should invest? Investors with a low risk tolerance for their shorter-term goals who seek a stable investment but typically want a higher yield than an all Treasury-only fund.

Tax-exempt Funds

These money market funds are designed for investors seeking income exempt from federal income tax (also state and sometimes local taxes with state-specific funds) and are composed of short-term municipal securities. Their yields are lower than Treasury-only and general funds to reflect the tax advantage.

Who should invest? Investors in a higher tax bracket or who live in high-tax states should consider tax-free money market funds. See whether tax-exempt funds can benefit you.

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