How to Use Money Market Funds to Boost Stock Investing

💡 The Big Idea

Markets don’t always move in straight lines.

• Sometimes, the stock market runs hot (prices are high, less value).
• Other times, it cools down (prices fall, bargains appear).

Instead of keeping money idle or buying overpriced shares, you can use a Money Market Fund (MMF) as a safe and liquid “waiting room.”

📊 How the Strategy Works

1️⃣ When Market Prices Are High (Bull Run)

Shares like Safaricom, Equity, KCB may look overpriced (P/E ratios high, dividend yields low). Buying at this stage often locks you into expensive positions.

👉 What to Do:

• Put new money (or dividends received) into an MMF.
• Earn daily interest while you wait.

2️⃣ When Market Prices Drop (Corrections / Elections / Foreign Sell-offs)

Even strong counters (Safaricom, Equity, SCBK, EABL, BAT) fall. This is when value appears (low prices, high dividend yields).

👉 What to Do:

• Withdraw from your MMF (capital + interest).
• Buy more shares at a discount.
• Your money works harder because you’re getting more units for the same cash.

3️⃣ Reinvesting Dividends Smartly

Many investors reinvest dividends immediately — but sometimes prices are already high.

Instead of chasing high prices:

• Park dividends in MMF.
• Wait until the market cools.
• Reinvest into shares at cheaper prices.

✅ This way, every dividend “buys more shares” in the long run.

🧮 Simple Example

You hold 1,000 shares of Equity Bank. Equity declares a KES 4 dividend per share = KES 4,000 dividend.

Case A – Direct Reinvestment at High Price
Equity is trading at KES 50.
Your KES 4,000 buys 80 shares.

Case B – Parking in MMF, Then Buying at Lower Price
You put KES 4,000 in MMF for 6 months, it grows to ~KES 4,200.
Market dips, Equity trades at KES 40.
Your KES 4,200 now buys 105 shares.

👉 Same dividend, but because you waited, you own 25 more shares.

⚖️ Why This Works

• MMFs give you liquidity + interest while waiting.
• Stock markets are cyclical → patient investors benefit.
• You avoid buying at peak fear or peak greed.

🚦 Caution (Important for Clients)

• Timing the market is never perfect. Prices may stay high longer than expected.
• Don’t keep all money in MMFs — stay invested in your core long-term stocks.
• Use MMFs only as a tactical tool for dividends, profits, and new cash inflows.

🎯 Final Word

Wealthy investors don’t just buy shares blindly. They rotate between stocks and MMFs depending on market cycles.

• When prices are high → sit in MMFs, earn interest.
• When prices are low → move back into quality stocks.
• Repeat this cycle with dividends and profits → your portfolio grows faster.