Wednesday, September 17, 2008

Even Money Market Funds Have Downside Risk

The financial turmoil in the markets is making it clear that all investments have risks, even the supposedly stable money market fund. The share price of the Reserve Primary fund has fallen below $1 according to USA today. The share price has fallen to $0.97 and a seven day hold has been put on redemption requests. This is only the second fund in history to have reduced the value of a share below $1.

I had briefly considered buying the Reserve Primary fund for my daughter's UTMA account, Fortunately, the amount of funds available was below the minimum purchase requirement. Thus, I kept the funds in the brokerage money market account that was only earning 0.5%, which has turned out better than the 3% loss experienced by holders of the Reserve Primary fund beginning today.

Needless to say, I've been inquiring about the quality of the money market funds I have with different brokerages. While I believe all of them are safe, I still plan to move some funds to our checking account, where I know the money will be accessible and safe from investment losses. Just as a precaution ...

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This is not financial advice. Please consult a professional advisor.

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