When it comes to matters of managing wealth, choosing the right path as an investor can be tough – and it largely boils down to how you want to play your financial hand in the short or long term.
This question can be asked in terms of the two main markets available to you when investing – the money market or the capital market – where should you invest? Here, we’ll discuss the key features of both market options, their differences, and how you can begin your journey into either one.
What is the money market?
The money market concerns high-quality, short-term debt instruments that mature within a single year. Money market investments are considered safe bets, offering low but relatively assured returns in a short space of time.
In the US market, these short-term debt instruments include US treasury bills, certificates of deposit and commercial paper. These sorts of investments are best for firms or investors looking to borrow money for a short period of time.
What is the capital market?
The capital market focuses on securities with longer maturation periods – longer than a year at the bare minimum (indeed, in many cases, more than a decade). Instruments traded on the capital market include stocks and bonds and are utilised by investors who want to raise money in the long term.
What are the differences?
As an investor looking to make a start in either market, the best way to look at the differences of both trading arenas is in how they appeal to different investors.
Risk averse investors will feel more comfortable in the short-term, low-return environment of the money markets. These sorts of investors tend to have a short-term focus such as immediate retirement concerns or saving up for a large purchase like a house or a university education. If the number one priority for you is to preserve your investment, the money market makes more sense.
For risk tolerant investors seeking bigger rewards, or long-term investors with time on their side, the capital market is likely to pay (or lose) more dividends for those looking to win big, and recover in time for those with more patience.
There are a number of key structural differences between the two markets which you can find a run-down of here.
The best investing apps for both?
Your best investment app is the one that makes investing clear for you. Naturally, you’ll want to choose a large-scale, reputable app with solid reviews and a trusted name behind it, but beyond that it’s about finding a trading platform that works for you.
Be sure to look at review sites for additional information on certain apps, and ‘shop around’ for the best incentives, as you’ll be able to find apps that offer a free trading bonus to get you started.
As ever with any type of investment, caution is strongly advised – even when entering safer money markets. Do you research, get a grasp on the fundamentals of investing and then choose whether to take on the slow and steady route of money markets or the high stakes world of capital investing.
