Investment buckets, Index funds, Money market funds

Various pulls of investment

There exist various ways that one can invest money and each category has its pros and cons and depends on one’s financial situation and goals. Some of the most common types of investment include fixed deposit accounts (or certificates of deposit), bonds, stock market, and mutual funds among others.

Tony Robbins further categorizes these types of investments into three:

1. Security bucket
2. Risk/growth bucket
3. Dream bucket

Security bucket houses investment options with low volatility and risk. This bucket is a sanctuary for your safe investments; those you don’t want to lose. Its purpose is to grant you certainty in life. The investment options here include cash & cash equivalents, bonds, fixed-deposit accounts, and annuities.

Risk bucket houses investment options with high volatility and risk. Here, you take calculated risks with the aim of gaining truly big returns. Due to this, you may end up losing everything in the process. Investment options here include equities (owning publicly traded companies’ stocks), real estate, and currencies.

Tony Robbins on asset diversification:

“It means dividing up your money among different classes, or types, of investments (such as stocks, bonds, commodities, or real estate) and in specific proportions that you decide in advance, according to your goals or needs, risk tolerance, and stage of life.”

Index funds

Now, before we delve into money market funds, the main issue of this article, let’s talk a little bit about index funds because it relates to it.

Investopedia defines index funds as “a type of mutual fund or exchange-traded fund with a portfolio constructed to match or construct the components of a financial market.” They are meant to allow people to invest in multiple sectors, hence, assisting them to reduce risk and lower their portfolio turnovers. Say Maryanne has chosen an investment vehicle with a local bank that allows her to collectively invest in treasury bonds, equities, and annuities. She, therefore, can be said, in one way or the other, to have invested in index funds. Remember that it has to be a single portfolio managed by approved finance institutions – such as banks.

Money market funds (MMFs)

It’s safe now to dive into money market funds. Simply put, they are unit trusts (collective investment schemes) that invest in low-risk investments with stable returns and short durations & high credit quality.

Mwalimu Rachel recently shared that, as her new financial behaviour during this financial crisis period, she is investing in MMFs.

@MwalimuRachel shared her new financial behavior changes during this global economic crisis. We hope they are helpful. Any other useful mechanism yenye unatumia? #Life #PersonalFinances #MRXMedia pic.twitter.com/V6EN3nEmBH

— MRX To The World. (@MRX2TheWorld) September 21, 2022

Examples of money market funds in Kenya include:

• CIC Money Market Fund
• Cytonn Money Market Fund
• Sanlam Money Market Fund
• Zimele Money Market Fund

Find this table analysis of the pros and cons of each of the above services by nashthuo.com (last updated in August 2022).

Conclusion

Commit to conducting further research and select a local money market fund option that works for you and go ahead to open an account for the purposes of investing in MMF.

The secret lies in practicing what we learn. Hence, plan yourself well and put into practice what you’ve learnt from this article and your further readings.

Happy investing 🙂 .