ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Monday, October 28, 1996 TAG: 9610290004
SECTION: MONEY PAGE: 6 EDITION: METRO
COLUMN: Money Matters
SOURCE: MAG POFF
Q: What is the difference between mutual funds and money market funds? What are the advantages of each?
A: You probably refer to money market mutual funds which are sold at brokerage houses and other financial institutions. When you ask about mutual funds, you may mean those composed of stocks and bonds.
Actually, money market mutual funds are also mutual funds. A mutual fund is merely a pool created by a financial institution to allow investors to share in the money markets.
A money market mutual fund is generally composed of short-term government and corporate securities. These are agreements based on debt lasting less than a year, such as corporate and Treasury borrowings.
Sponsors of these funds maintain the value at $1 a share, and those who invest in the funds earn interest on the underlying paper. These funds are generally considered to be reliable and safe, so your principal should hold steady. You will earn higher interest than you can obtain from a bank. But you will have none of the risk - or the possibility of share appreciation - that you will find in a fund that invests in stocks.
Money market mutual funds are good places for parking money that you might want to get at quickly. This might be money parked between investments. Or it may be money you will need soon for a major expenses, such as to buy a house or make a college tuition payment. Many of these funds allow you to write checks on your account.
Mutual funds that invest in stocks are designed for people investing for long-term growth. Markets can drop, so you need time to allow for the stock market to recover from any downturn. Most people who invest in mutual funds make monthly or quarterly contributions to their accounts, which they expect to retain for a minimum of five years.
Banks also offer money market accounts, which differ from money market mutual funds. These are bank accounts insured by an agency of the federal government. Most banks require a minimum deposit of $2,500 for these accounts and, by law, you are limited to three checks a month although you can appear in person at any time to withdraw your money. Banks' money market accounts are extremely safe, so the interest rate is lower than you would receive from a money market mutual fund.
Shopping for
life insurance
Q: As a 36-year-old father of two boys (ages 2 and newborn), I need a good life insurance policy. At present, all I have are very small policies and two policies that only cover accidental deaths (not cancer or heart attacks). I would like at least $100,000 or more in insurance.
Can you recommend a good plan for me and my wife. Can we get a family plan that covers both of us? What companies have the best plans?
A: Many solid companies are licensed to sell insurance in Virginia. Most of them will have a variety of plans with provisions that are similar to each other.
A good way to start is to find an agent who works near your community and who has a good reputation. You may want to talk to several local agents to find one with whom you are comfortable. This person should be well established so that he or she will be available for a long time to service your account and give you advice. But always remember that this person may be motivated more by the amount of the commission than by your best interests.
When you talk to these agents, obtain from them the ratings given to the companies they represent. You should see ratings from A.M. Best, Standard and Poors, Duff & Phelps and other agencies. These ratings will help you select a company and agent.
You may want to replace the two accidental death policies. As you point out, the cause of death is not related to the financial needs of your family if you were no longer in the picture.
Sit down with your wife to determine all of the surviving spouce's sources of income, such as Social Security and earnings, and all of the expenses your family would have. You need insurance to make up the difference. That means you should have coverage for both of you.
Buy as much insurance as you can afford up to this amount. Don't get talked into a cash building policy if term insurance is what you can afford to buy to reach the coverage you need.
If you buy term insurance, try to get a policy that is renewable at the end of its term and that is also convertible to permanent insurance.
LENGTH: Medium: 82 linesby CNB