What would you do if a cool $100,000 suddenly found its way into your coffers? Perhaps you would spend some or all of it on something fun. Or maybe you would use the money to pay off debts or make a down payment on a new house.
Other people with $100,000 might be tempted to simply hold on to the money and watch it grow. But where would you keep such cash?
Money Talks News reader Sherry C is among the lucky people wondering how to invest $100,000. She asks:
“I have approximately $100,000 that I would like to put into an investment account rather than a basic savings account. The funds are currently in a business checking account for an architectural firm. The firm is registered as professional association in the state of Florida. Do you have any suggestions for alternatives to a basic savings account?”
Money Talks News founder Stacy Johnson knows a bit about investing. In addition to being a certified public accountant, he has earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate. He also worked as a stockbroker for more than 10 years.
Stacy says there are several good options for Sherry if she wants to keep the $100,000 working on her behalf.
If she is looking for robust growth — and doesn’t mind taking on a little risk — she could move the money into a brokerage account with a firm like Vanguard or Fidelity. There, she could put the money in stocks, bonds and other investments.
If she wants to dial back on the risk, she could park her cash in a money market fund at the brokerage firm of her choice. Stacy says he has business funds in a money market fund at Vanguard himself.
A money market fund typically invests in low-risk short-term debt securities. As Vanguard notes, these might include Treasury bills, municipal debt and corporate bonds.
Stacy says that currently, Sherry might earn up to a 4% annual percentage yield (APY) in a money market fund, which he notes is “way better than a bank savings account.”
There is a potential drawback to money market funds. They are not insured by the Federal Insurance Deposit Corp., or FDIC.
In reality, though, money market funds are “pretty darn safe,” Stacy says. Historically, losses in money market funds have been rare.
The Securities Investor Protection Corp. also protects money market funds for up to $500,000 when the money is held in a customer’s account at a brokerage firm. However, it’s important to note that this protection guards you against the failure of the brokerage firm itself, not a decline in the value of the money market fund.
Sherry could also put the money in a bank if getting FDIC protection makes her more comfortable, Stacy says. Sherry could likely find a better return than she would get in a standard savings account if she put some or all of her money in a bank money market account or high-yield savings account.
Despite the similarity of the names, a money market account is different from a money market fund. While a money market fund is an investment product, a money market account is a deposit account that shares aspects of both checking and savings accounts. It is insured by the FDIC for up to $250,000 per depositor.
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