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If you have any $ in a Money Market Fund - Morgan Dawn Livejournal:The Here And Now
The Here And Now
morgandawn
morgandawn
If you have any $ in a Money Market Fund
If 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

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catalenamara From: catalenamara Date: July 25th, 2014 12:14 am (UTC) (Link)
Thanks for the info. I was just thinking about a similar issue today and your post helped me make a decision.
morgandawn From: morgandawn Date: July 25th, 2014 12:26 am (UTC) (Link)
For cash you need to access within the next year, I'd suggest a regular savings account. For CDs, only tie up the $ for 1 year - when the rates rise, you can then look at the CD laddering with longer periods.

Most of us have straightforward money needs but I know that in my old job, money market funds were the only option if you wanted to park your cash in the 401k.
catalenamara From: catalenamara Date: July 27th, 2014 04:46 am (UTC) (Link)
Thanks again - this exactly parallels my thinking. I am very financially risk-adverse.
morgandawn From: morgandawn Date: July 27th, 2014 05:27 am (UTC) (Link)
The best advice I've been given for those close to/about to retire is to keep a 50/50 mix = 50% cash or bonds (bonds/bond funds are best inside tax free retirement accounts) and 50% stocks/stock funds. If and when bonds/CDs can be locked in for 4-5%, move more $ into them). You need 4-5% to keep up with inflation.

The other advice - which is a lot less practical for most of us is to keep 3 years cash reserve (yeah!) and the rest in stocks. The idea is that even if we retire, we still have another 20 years to go - if the market falls (like it did) you live off the cash and when the market goes back up, you pick up the gains. The majority of small investors sold at the bottom and never regained. And they lacked the cash reserves to ride out the low and grab on to high. So this second plan is a lot less reachable for the average investor.

if you can move your retirement account, I suggest an IRA at Vanguard - they have lowest fees and solid index funds. And if you don't have a retirement account, only savings, keep it in an FDIC insured savings account or CD.
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morgandawn From: morgandawn Date: July 25th, 2014 06:04 am (UTC) (Link)
Thanks for the input. I recommend CD laddering for cash reserves - but for now, with rates so low, I would not lock my funds for more than one year. The bigger issue is 401ks - my old employer offered a 'Stable Value Fund' which of course meant you had to read the fine print to realize that it too had the ability to fluctuate.

What do you think of the article's suggestion to use T-Bills? We've used IBonds in the past, but Treasuries seem more mysterious.
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