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How Safe is Your Money Fund?
7-27-11 Wall Street Journal--Money Market Funds Dial Down Risk
- Money Funds Dial Down Risk - WSJ.com
As European and American policy makers scramble to avert debt crises, money-market mutual funds are reducing risk and boosting their cash holdings in an effort to prepare for a wave of investor redemptions.
11-22-11 Federated--Rule Changes Enhance Money Market Fund Safety
1-15-09 Reserve Money Market Fund Executives Accused of Lying
State regulators in Massachusetts have accused top executives of the Reserve Fund of lying to shareholders about the safety of their investments hours before the firm’s largest money fund disclosed that its share price had fallen below a dollar — and then giving big shareholders first crack at avoiding losses.
Money Market Funds Are a Refuge, Right? by Diana Henriques in the NY Times 1-10-09
12-05-08 Reserve Money Fund to Use Investors Money for Its Legal Fees in Investors' Lawsuit
- Reserve Primary Fund to Use Investors' Money for It's Own Legal Fees in Suit Brought by Investors
Primary Reserve Fund which "broke the buck" a couple of months ago will use its investors' money for its legal fees if they don't accept $98.50 on the dollar, i.e., have their investors reimburse them for their own wrongdoing, says investors' lawyer.
11-24-08 Treasury Extends Money Fund Guaranty Plan from December to April 29-09
- Treasury extends mutual fund guarantees to April, 2009 - Nov. 24, 2008
The government is extending a program to bolster the money-market mutual fund industry until April 29,2009.
Nov. -08--Virtually All Money Market Mutual Funds Covered by Treasury Guaranty Program
- Virtually All Money Fund Families Now Covered by Treasury Guaranty
Crane Data brings you money market mutual fund news, information, intelligence and data.
11-19-08 Will Money Fund Guaranty be Extended?
- Guarantee for money-market funds facing renewal question
After The Reserve Primary Fund broke the buck as its share value fell to 97 cents from $1 two months ago, investors began to question the safety of all money market funds.
10-22-08 Fed Moves to Shore Up Money Funds by Michael Grynbaum in the NY Times
The Fed announced yesterday that it would provide a backstop for the short-term debt that many money-market funds hold...This is putting a safety net and a parachute around money market funds said Peter Crane, of Crane Data tracker of money funds.
10-09-08 Four Mutual Funds Join Money Fund Guaranty Plan
Four Mutual Fund Giants Join Guaranty Plan October 9, 2008, 6:40 am
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As the deadline for enrollment neared on Wednesday, four of the nation's best-known mutual fund companies said they had joined the new federal program aimed at restoring confidence in the nation's money market funds, The New York Times's Diana B. Henriques writes.
Fidelity Investments, Vanguard, T. Rowe Price and Oppenheimer Funds all have decided to participate in the ad hoc guaranty plan, which was announced by the Treasury Department on Sept. 19 as part of the federal rescue package aimed at stabilizing the hard-hit credit markets. It specifically insures that the value of participating money fund shares will not fall below a dollar.
Charles Schwab, Federated, Morgan Stanley, Putnam Investments, BlackRock and JPMorgan Chase announced their enrollment in the plan last week.
The cutoff for the program was set at 11:59 p.m. Wednesday.
All the newly enrolled companies emphasized that their own money funds had never "broken the buck" by reporting a per-share price below a dollar and were not at risk of doing so now.
"However, the current global financial climate is extremely uncertain," Gus Sauter, chief investment officer at Vanguard, said in a statement sent to shareholders on Tuesday.
T. Rowe Price also cited the unsteady market conditions in its announcement, saying that participation in the new program would "provide an additional layer of reassurance for our money fund shareholders during this difficult period."
Money funds are an important source of short-term credit for banks and businesses because they have been steady buyers of the commercial paper and other short-term corporate notes that businesses issue.
But investor confidence was shaken by news on Sept. 16 that the Reserve Fund, the original money fund sponsor, had broken the buck. The resulting stampede out of money funds put additional strain on a financial system already shaken by the bankruptcy of Lehman Brothers and the federal rescue of American International Group.
The Treasury plan seems to be having some effect. The most recent data from iMoneyNet, a research firm, shows that money fund assets had steadied at $3.38 trillion in the week ended Tuesday night after declining almost daily for weeks. On Sept. 15, money funds held $3.43 trillion in assets.
Go to Article from The New York Times » Go to Press Release from Vanguard »
Who's to blame for crisis? Click on this link for the answer.
- Find Out Here Who Caused the Current World Crisis
Peter Goodman rounds up the "usual suspects" in an exceptional research reporting job in the NYT 10-09-08. They are: Ayn Rand channeled by Alan Greenspan, Robert Rubin, Larry Summers and Phil Gramm, all apostles of free, self-regulating markets.
4 MUTUAL FUNDS JOIN MONEY FUND GUARANTY PLAN Diana Henriques in NYT
Vanguard, Fidelity, Oppenheimer, T. Rowe Price join money fund guaranty plan.
9-19-09 Money Market Fund Gurarantee Proposed by Bush
The Bush administration is working with a bi-partisan Senate and House group on a proposal that the federal government provide a temporary guarantee of private money market funds. The details of the proposal are yet to be worked out. Presumably, the guarantee will be similar to that provided to bank deposits by the Federal Deposit Insurance Corporation (FDIC).The maximum amount in any one fund which would be guaranteed by the government has not been announced. Stay tuned.
Cloud Over Money Market Funds
Tara Siegel Bernard writes in the New York Times 9-18-08 that "Money Market Funds Enter a World of Surprising Risk":
Money Market Funds Enter a World of Risk
By TARA SIEGEL BERNARD Published: September 17, 2008
Money market funds have been among the few places that investors could put their cash and sleep peacefully.
Matthew Tuttle said money management funds at large brokerage firms can be reassuring for investors.
At the moment, that is not necessarily true.
On Tuesday, the Reserve Primary Fund, a giant money market fund whose parent helped invent that investment, said its customers would lose money. Instead of each share being worth a dollar for every dollar invested, it said its customers' shares were worth only 97 cents. In Wall Street parlance, it "broke the buck," a rare occurrence.
So far, it appears that no other money market funds have fallen below a dollar a share. And other money market managers have hastened to reassure investors that their money is safe. But the Primary Fund's announcement did raise this question: What, in today's world, is truly safe?
After all, the Primary Fund's troubles did not occur in isolation. They followed the disappearance of both Lehman Brothers and Merrill Lynch, not to mention the government bailouts of the mortgage finance giants Fannie Mae and Freddie Mac and the insurance company American International Group. And if you haven't already forgotten, there was the failure of the California thrift IndyMac in July.
And that's why, in this market, financial advisers agreed on Wednesday, consumers need to become their own chief investment officers, even when it comes to something as simple as finding a place to put their cash.
"One by one, all of my safe havens aren't so safe anymore, and that's a bad thing," said Matthew Tuttle, a certified financial planner and president of Tuttle Wealth Management in Stamford, Conn.
"It used to be O.K. to have money in a CD, but now you have to worry, ‘Is my bank going to go under?' " he added. "You used to be able to buy a guaranteed annuity from an insurance company, but now you have to worry, ‘Is my insurance company going to go under?' Or, you can have auction-rate preferred securities, but now there is no market."
Before you pull your cash out of your money market fund, you need to understand what you own. There is a big difference between money market mutual funds and the money market deposit accounts at a bank (and banks sometimes sell both).
Money market funds are essentially mutual funds that invest in securities that, until this week, were deemed relatively low risk. Those include government securities, certificates of deposit, asset-backed commercial paper and other highly liquid securities.
The Primary Fund got in trouble because some of its investments were in Lehman Brothers' debt. To stop what is in essence a run on the fund, the Primary Fund has stopped all redemptions for up to seven days.
A money market deposit account, on the other hand, is entirely different. It is an interest-bearing bank account that is insured - up to $100,000 per account and up to $250,000 for some retirement accounts - by the Federal Deposit Insurance Corporation. Joint accounts are insured for $100,000 per account holder.
If you had been putting your money into a money market account because you wanted to avoid all risk, then you should consider the money market deposit accounts and other accounts insured by the F.D.I.C., like certificates of deposit and regular checking and savings accounts.
There are also Treasuries. But because so many investors were rushing into them on Wednesday, the yields have been driven down. "There is no yield," said Saxon Birdsong, chief investment officer of Baltimore-Washington Financial Advisors. "It's just a safety play."
If you decide to invest - or stay - in a money market fund, there are several things you should keep in mind.
When it comes to money market funds, bigger may be better, several financial advisers said. Many investors use the funds that happen to be with the brokerage firm they are doing business with because it's convenient to sweep money between accounts. But you should make sure your money market account is with a large, diversified money management company that would have the resources to make you whole, even if its funds ran into trouble.
Mr. Tuttle said companies like Fidelity and Vanguard fit into this category.
"I would be less comfortable with a smaller money management fund that didn't have a lot of assets and wasn't making a lot of money," he said. "From my standpoint, I have a very high comfort level that if a Fidelity money market fund had toxic whatever, they would step up with the money from somewhere else to keep the buck."
Once you decide on a provider, read the prospectus carefully. If you don't understand the investments, call the company and ask for more details.
"I would encourage investors to not stop asking questions until they have complete comfort and peace about what they own," said Karin Maloney Stifler, a certified financial planner with True Wealth Advisors in Hudson, Ohio.
And if you are still nervous, ask your current mutual fund company or brokerage if it has a Treasury or government money market fund that invests only in Treasury securities, said Greg McBride, senior financial analyst at Bankrate.com, a personal finance Web site.
"You will have to settle for a lower yield," he said, "but it takes risk off the table."
Indeed, this is one of those times when you shouldn't necessarily choose a fund because it has a high yield. That higher yield could indicate that the fund is investing in riskier securities.
"This is a painful but poignant reminder that anything that is paying you a higher yield, you have to assume is carrying a higher risk," said Peter Crane, president of Crane Data, which tracks money market mutual funds.
Finally, investors should diversify cash holdings, just as they would with a stock and bond portfolio.
"If you have money market mutual funds with multiple providers, you are hedging against the risk that any one of them will encounter problems that they can't survive," Ms. Stifler said.
But if you don't have a strong stomach for the slightest risk, stick with investments that are F.D.I.C. insured, even if you need to sacrifice a little yield.
After all, "this is a portion of your portfolio that should help you sleep at night, not keep you awake," Mr. McBride said.
The Investment Company Institute, the mutual fund industry's trade group, compiled a list of statements late Wednesday from money-market mutual fund managers that assured investors their funds were safe. Here are the links to the fund company's statements:
Vanguard Statement 9-19-08 on Money Fund
- Vanguard Statement on its Money Fund
Vanguard statement on money fund risk.
9-20-08 Federal Government to Guarantee Eligible Money Market Mutual Funds
- Treasury to Guarantee Money Market Funds - NYTimes.com
The Treasury said it would back the funds temporarily up to $50 billion to ensure their solvency.
1-15-09 Massachusetts Accuses Executives of Reserve Money Fund of Lying to Investors
Massachusetts accused execs Reserve Fund of lying to shareholders about the safety of their investments hours before the firm’s largest money fund disclosed that its share price fell below a dollar and giving big shareholders first chance to get out.