Is a Money Market still save?

[Troyrb]

I recently put 20k in a Vangard Prime MM fund. I put the money there in hopes that when the market gets better and I would invest it in a better long term fund. With the recent crisis are these MM funds still safe?

[sweeps]

Safe is a relative term. It's pretty safe, but the recent "breaking the buck" does show there is some risk in MMF investing.

With FDIC-insured high-yield savings accounts offering higher rates and theoretically better protection, why choose an MMF if you don't have to.

[Broken Arrow]

You know, I've always wondered that myself. Right now, some online savings account (which have FDIC protection) can beat the pants off of most anything. About the only time MM funds are good for is when you're planning to make an investment buy in the not too distant future....

In any case, your MM fund MIGHT have SIPC protection, but even then, there may or may not be limitations to the coverage. I recommend to find out and read the fine print.

Also, it is generally expected that you're always taking some kind of risk with any investment vehicles, even ones that are suppose to be quite safe.

[tripods68]

I agree MMs are the safest best right now along to US T-bills.

[glock35ipsc]

I recently put 20k in a Vangard Prime MM fund. I put the money there in hopes that when the market gets better and I would invest it in a better long term fund. With the recent crisis are these MM funds still safe?

From Vanguards website regarding it's Prime Money Market Fund:

Our largest money market fund is Vanguard Prime Money Market Fund, which currently holds more than half of its assets in U.S. Treasury and federal agency securities. In addition, Prime Money Market Fund has no exposure to money market instruments issued by securities dealers, including Lehman Brothers. It also has no exposure to securities of AIG, the insurance concern that is being supported by loans from the federal government.

Holdings of Vanguard Prime Money Market Fund (as of 8/31/2008)
U.S. Treasury: 36%
U.S. Agency: 17%
Certificates of deposit: 32%
High-quality commercial paper: 14%
Repurchase agreements: 1%

[disneysteve]

Money market funds are safe. BA is correct that they are covered by SIPC which covers your accounts up to, I believe, $500,000.

When with a major company, like Vanguard, you can be sure that they would eat any loss to keep the fund from breaking a buck.

[sweeps]

I agree with your 2nd statement, Steve, that it is unlikely that a company like Vanguard will allow its MMF to break the buck. However, your statement about SIPC coverage is not true.

SIPC doesn't compensate investors for declines in the value of their investments, and that rule also applies to money-market funds that "break the buck." Nor does the company bail out investors who are sold worthless securities. If your broker fails, SIPC will return the shares of your missing securities whenever possible, regardless of the current market value.

How Safe Is Your Brokerage Account? - Forbes.com

[safari]

Looks like it's possible to lose money in a MMF. Check out this article.

[glock35ipsc]

Yeah, but that is a small company compared to Vanguard or T. Rowe Price. They have only been around for about 13 years. I doubt they have the financial means to keep theirs shored up like disneysteve mentioned.

From Girard Gibbs website:

The fund is owned by Reserve Management Corporation and held approximately $785 million in Lehman Brothers commercial paper and medium-term notes.

From Vanguards site:

In addition, Prime Money Market Fund has no exposure to money market instruments issued by securities dealers, including Lehman Brothers. It also has no exposure to securities of AIG, the insurance concern that is being supported by loans from the federal government.

In this particular case, it all depends on what paper the funds holds.

[glock35ipsc]

Well, I stand corrected, although this one is still chump change compared to Vanguard's $106.3 Billion asset total:

Money-Market Fund Shut After Run - AOL Money & Finance

BOSTON (Sept. 18) - Putnam Investments on Thursday suddenly closed a $12 billion money-market fund and announced plans to return investors' money after institutional clients pulled out cash despite the fund's lack of exposure to troubled financial firms such as Lehman Brothers Holdings Inc.

[disneysteve]

your statement about SIPC coverage is not true.

Thanks for the correction. Sorry for the mis-information.