While money market rates are considerably low right now, many investors are turning to ETFs and other short-term bonds. Many conservative ETFs and bonds are actually beating money market rates currently. Here, we’ll take a look at these investments. What Are ETFs? ETFs are exchange traded funds, which means that they pool together a variety of exchange based securities to diversify and reduce risk. ETFs are built to correspond to a major index. Many brokerage firms, including Pimco, Barclays, and Fidelity are now offering money market ETFs that are competing for money market fund dollars. These ‘active ETFs’ actually target “non-immediate” cash allocations, so they can make more aggressive bets on the market. However, their risk is tempered by their mass diversification. Active ETFs, therefore, give up liquidity in exchange for higher interest. Active ETFs are Yielding Strong Interest The yields of active ETFs have fluctuated since their inception, but they are currently out-competing the majority of money market funds. Some investors prefer to invest in traditional ETFs, which continue to perform very well despite the rough economic climate. For some reason, ETFs have managed to generally weather the storm better than money market funds. It’s wise to invest in an ETF that has been highly customized. For example, you may not want to jump on an ETF bandwagon simply because it’s the most popular. It’s good to consult with a securities professional so that you can determine what type of ETF fits in best with your portfolio. Even ETFs, which are diversified themselves, must be further diversified within your portfolio to yield the greatest returns.
Provided by Victoria of Ratelines.com.
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