A money-market fund invests in "cash equivalents" - typically super-short-term loans to creditworthy corporate or government borrowers. People often invest the "cash" portion of their retirement portfolio, if any, in money-market funds. (Other cash investments include certificates of deposit and bank savings accounts.)
Though money-market funds are very safe, their long-term returns are lower than those for bonds, and much lower than those for stocks. So they're best for older investors who are looking more for safety than for growth.
Some money-market funds are taxable; others are exempt from federal income tax (and some are exempt from state and local taxes, too) because of what they invest in. Generally, tax-exempt funds pay lower yields than taxable funds do. But if you have the fund in a taxable account and you're in a high tax bracket, you can come out ahead with a tax-exempt fund.
