Last week we covered three categories that define different areas and levels of risk in portfolio diversification, otherwise known as asset allocation. These categories were growth, fixed, and liquid. Frankly, when we struggle with a limited budget, growth sounds good, fixed sounds ominous, and liquid sounds the best - especially if we're making a profit while we have full access to our funds.

The liquid assets are most important for single moms, especially if we need to hold funds for emergencies and other expenses that catch us by surprise. As mentioned last week, we could keep these funds under the mattress, but we want to accumulate profit on these dollars, not dust. If we look to BUYandHOLD as a resource for growth funds only, we might be selling ourselves short. Although it may seem obvious that BUYandHOLD is a great resource for equity investments, it may not be so obvious that BUYandHOLD also offers channels for liquid investments. And, I mean LIQUID. Let's take a look at how BUYandHOLD's money market funds can add liquidity and diversity to our portfolios.

BUYandHOLD offers three different types of money market funds, and each one is a bit different. Before you read the information about each fund, I want to warn you about a mistake I made, because I don't want you to repeat the same blunder. I read the prospectus on each fund with an eye to that $10,000 minimum deposit required in each prospectus. Forget that minimum deposit. That's only true if we invest in the money market funds directly for long-term investment purposes. We discovered we don't have to come up with that minimum at BUYandHOLD because our accounts are set up to automatically buy additional money market fund shares when cash is left in the account. In other words, our cash sweeps into the money market fund shares.

So now that we know we don't have to sell the sports car and take transportation, we can focus on why money market funds are more practical than dealing with the bank or wading between two mattresses to find all those musty one dollar bills. Here are some good reasons to create a win-win situation with BUYandHOLD money market funds:

1. Money market funds are not fly-by-night operations. The concept and operations of Funds have been around for about thirty years, and are major sources of investments into corporate, government, bank, and treasury notes.
2. For liquidity, you can't beat a money market fund. You can cash out the same day you call to redeem your shares. There's no penalty for withdrawal, but you might not receive a dividend for the day you redeem shares.
3. The Funds at BUYandHOLD are not secured or guaranteed by any bank or by the government, but that's not unusual. The investments made by each Fund are not frivolous or very high-risk, and - as you'll find when you read the prospectus for each Fund - the investments are carefully researched and backed by many government notes that are considered very safe, because the government has the ability to raise taxes to meet financial obligations.
4. The yields fluctuate, but they probably beat yields at the local bank, even with compound interest.
5. BUYandHOLD offers the following: Federated Government Cash Series, Federated Prime Cash Fund, and Federated Municipal Cash Series.

When you click on each fund above, the link will take you to a short introduction of each Fund, and each one includes links to a prospectus for each Fund at the bottom of each page. The first Fund is focused on government investments, and the second fund mixes it up with corporate, government, and other notes. The third Fund is more focused on short-term investments. The difference between each Fund is subtle, but enough to make one fund a bit more appropriate to one person than another at any given time. If we take a few moments to read each introduction and follow the links at the bottom of each page to the prospectus for each Fund, we can quickly decide which fund is for us. That's almost all the work we have to do to take care of this portion of asset allocation.

The other part of our work comes at tax time. Distributions and dividends are usually taxable whether we cash out or reinvest, with dividends taxed as ordinary income and capital gains taxed at varying rates dependent on the length of time the Fund holds assets. The exception would be money market fund #3, which may bypass regular taxes, but the dividends will probably be treated as usual when we report them to Uncle Sam. Please check with your accountant regarding your specific tax consequences.

Although this opportunity may not seem such a huge discovery at first glance, when we dig deeper we realize we can diversify our portfolio all at one place and with a few keystrokes. For those of us who declare we're too busy to manage our own investments, this convenience takes some wind out of this claim. When we log into our account at BUYandHOLD, we have the whole gamut of asset allocation at our fingertips.

The last bit of work (and the only other thing we need to do to add money market funds to our portfolios) comes with opening a money market fund. We simply e-mail service@buyandhold.com with our account number and the money market account we want to add to our portfolio and Voila!, we've accomplished an important goal in our asset allocation.

Until Next Week,
Linda Goin