A random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing

Money-Market 
Mutual 
Funds
(Money Funds)
Money-market mutual funds often provide investors the
best instrument for parking their cash reserves. They combine
safety, relatively generous yields, and the ability to write
large checks against your fund balance, generally in amounts
of at least $250. Interest earnings continue until the checks
clear. Interest rates on these funds have generally ranged from
1 to 5 percent during the first decade of the 2000s. In 2010,
however, interest rates were very low and money-fund yields
were near zero. Not all money-market funds are created equal;
some have significantly higher expense ratios (the costs of
running and managing the funds) than others. In general, lower
expenses mean higher returns for you. A sample of relatively
low-expense funds is presented in the Random Walker’s
Address Book and Reference Guide at the end of this book.
Bank Certificates of Deposit (CDs)

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A reserve for any known future expenditure should be
invested in a safe instrument whose maturity matches the
date on which the funds will be needed. Suppose you have
set aside money for junior’s tuition bills that will need to be
paid at the end of one, two, and three years. One appropriate
investment plan in this case would be to buy three bank CDs
with maturities of one, two, and three years. Bank CDs are
even safer than money funds, typically offer higher yields,
and are an excellent medium for investors who can tie up their
liquid funds for at least six months. Though the certificates
are widely advertised as being government-insured up to
$100,000 per buyer, that sum does not include any interest
earnings that would bring the sum above $100,000. To be on
the ultra-safe side, put no more than $90,000 in the CDs from
any single bank.
Bank CDs do have some disadvantages. They are not
easily converted into cash, and penalties are usually imposed
for early withdrawal. Also, the yield on CDs is subject to
state and local income taxes. Treasury bills (short-term U.S.
government IOUs), which are discussed below, are exempt
from state and local taxes.
Bank CD rates vary widely. Use the Internet to find the

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most attractive returns. Go to www.bankrate.com and search
the site for the highest rates around the country. Deposits at
all banks and credit unions listed at this site are insured by
the Federal Deposit Insurance Corporation. Addresses and
phone numbers are given for each listing, and you can call to
confirm that the deposits are insured and learn what current
rates of return are being offered.