So what exactly is a money market fund and why are they cool again?

The last few months have been anything but ordinary. US President Donald Trump’s tariffs continue to loom over the markets like a Sword of Damocles, though stock markets actually remained relatively stable throughout the summer. Beneath this apparent calm, however, world trade is being reconfigured, and not only because of tariffs and geopolitical tensions. The unpredictability of policy decisions overall is shrouding the markets in uncertainty.

It’s no surprise, then, that many investors are seeking refuge in more “stable” vehicles to help them navigate these turbulent times. One option is money market funds—but what exactly are they, and what makes them an attractive investment?

What are money market funds?

A money market fund is an investment vehicle that allocates most of its assets to short-term money market instruments, such as Treasury bills, commercial paper, and bank deposits. Its primary objective isn’t to outperform the market, but to preserve capital and provide near-immediate liquidity, making it a go-to refuge in times of uncertainty. Plus, these funds typically invest in very short-term instruments, usually with maturities of less than one year, and are known for their low volatility.

What kind of investors do they attract?

Money market funds are often a favorite among conservative investors who want to preserve their capital while having ready access to their funds. They’re also a good option for those who prefer to keep their liquidity on hold until more attractive investment opportunities arise.

Investors often turn to these funds in periods of high uncertainty, or when stock markets are volatile and bank savings accounts offer zero or even negative returns.

Money market funds can also be especially useful for investors who have sold an asset but haven’t yet decided on their next move. During this transitional period, investing in a money market fund offers several advantages: it keeps liquidity readily available, gives investors time to make decisions calmly, and prevents capital from sitting idle in a checking account without generating returns.

Main advantages of money market funds

One of the biggest advantages of money market funds is their liquidity. They give investors the flexibility to access their money almost immediately. This makes them the ideal vehicle for unexpected financial situations.

Another advantage, particularly appreciated by more conservative investors, is their low level of risk. These funds invest in short-term assets with high credit ratings, which keeps volatility minimal, though not entirely absent. It’s important to remember that while the risk is low, it’s never zero.

Money market funds also offer diversification and can help balance an investor’s portfolio. Transparency is another plus, as they clearly show which assets the fund’s capital is invested in.

It’s worth noting that interest rates remain relatively high compared to previous years, creating a favorable environment for these products. In recent months, money market funds have delivered more attractive returns than they have in the past decade.

Disadvantages to keep in mind

One limitation of money market funds is their relatively low returns, generally below those offered by medium-term fixed income or even some promotional bank deposits.

Another drawback is the risk of inflation: if prices increase faster than the fund’s returns, investors lose purchasing power.

And while money market funds are credited for being extremely safe, they’re not entirely risk-free. As mentioned earlier, investors should bear in mind that there’s always some degree of exposure—however minimal—to market, credit, or liquidity risks.

Why are they still an attractive choice?

Given the current backdrop, where uncertainty dominates the equity markets and long-term fixed income is exposed to central bank interest rate decisions, money market funds have become a smart option. They offer stability, flexibility, and the ability to wait for better investment opportunities without leaving cash idle.

For conservative investors, retirees, or those looking to maintain a profitable liquidity cushion, they remain a reliable instrument that’s hard to replace.