If you have any $ in a Money Market Fund
Jul. 24th, 2014 05:01 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
morgandawnIf you have any money in your retirement accounts or just any account that is a money market fund, pay heed: the US has changed the protections for these funds and they are no longer guaranteed to keep their value.
Traditionally money market funds are places where people can store cash. Most are tied into some form of retirement or investment account, but with interest rates so low, some people have put their cash in these funds in order to get a better rate of return. Which was always an iffy idea idea because the accounts have never been FDIC insured. But at least they were guaranteed to not lose value - your $1 would always be worth $1.
This week the SEC changed the laws protecting the cash in money market funds so the value can fluctuate. They say this is limited to "institutional money market funds" whatever that means.
Some advice (bonus points for 'the Escape From New York' reference)
"So what can an investor do and what advice would I give them as a financial advisor? Stay out of money market funds! The few extra basis points of yield aren't worth it. You own NO legal guaranteed par put or portfolio-manager insurance from losses. Keep your cash in short term T-bills. Yes, there is very little interest. We live in a ZIRP-world, and that's how it goes unfortunately. Or, put your short term money in FDIC- guaranteed bank CDs. The yield differential isn't worth taking the capital-loss risk inherent in money-market funds, and the FDIC is the only real insurance around. If the FDIC can't honor its agreement, then we'll be living in a Snake Plissken world and it won't matter anyway. "
From here
Traditionally money market funds are places where people can store cash. Most are tied into some form of retirement or investment account, but with interest rates so low, some people have put their cash in these funds in order to get a better rate of return. Which was always an iffy idea idea because the accounts have never been FDIC insured. But at least they were guaranteed to not lose value - your $1 would always be worth $1.
This week the SEC changed the laws protecting the cash in money market funds so the value can fluctuate. They say this is limited to "institutional money market funds" whatever that means.
Some advice (bonus points for 'the Escape From New York' reference)
"So what can an investor do and what advice would I give them as a financial advisor? Stay out of money market funds! The few extra basis points of yield aren't worth it. You own NO legal guaranteed par put or portfolio-manager insurance from losses. Keep your cash in short term T-bills. Yes, there is very little interest. We live in a ZIRP-world, and that's how it goes unfortunately. Or, put your short term money in FDIC- guaranteed bank CDs. The yield differential isn't worth taking the capital-loss risk inherent in money-market funds, and the FDIC is the only real insurance around. If the FDIC can't honor its agreement, then we'll be living in a Snake Plissken world and it won't matter anyway. "
From here
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Date: 2014-07-25 01:08 am (UTC)(no subject)
Date: 2014-07-25 04:10 am (UTC)(no subject)
Date: 2014-07-25 11:30 pm (UTC)(no subject)
Date: 2014-07-25 11:52 pm (UTC)risks.