Cnn Money Markets Stocks

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Best Answer

Fiction.

The DOW is down nearly 1,000 point, partially over inflation concerns (at least that's the way the media puts it). CNN ran an article that said in the month of May, a record amount of money went into money markets. The market averages 10% and a money market around 4%? In the stock market you have dollars, and in a money market you have dollars. Both of which are worth less come inflation. Can someone explain the logic of this too me?

Best Answer

The stock market averages about 10% over about 50 years. Some years it goes up 25%. Some years it goes down 15%. In a short term environment, say the last 2 months, the market is down about 7%. Money markets on the other hand, are at about 4% right now. If you sold 2 months ago, you'd have missed the 7% drop and earned about 0.4% interest so you'd be up over 7% compared to someone who hung in with the stock market. Of course this assumes you were psychic two months ago and sold out. If you are a long-term investor and not a short-term speculator, you wouldn't be too worried about a 7% drop because you know it will likely recover soon. On the other hand, a good long-term investor will also try to minimize risk and will keep some money in shorter term accounts like money market accounts all the time anyway.