Troubled times for money market funds

There were times when a person could invest in money market funds and expect to sleep peacefully. This was before 9/11 which though did not trigger the global economic crisis has however the distinction of being the turning point at which the worlds relentless trot towards slow but steady prosperity was thwarted.

It all started with the reserve primary fund announcing that they would not be able to return a dollar for a share. Instead, investors would lose 3 cents for every dollar they had invested. This is called breaking the buck in Wall Street jargon. After this announcement was made, people started wondering whether their money is actually safe with a money market fund. 

The problem with the primary fund did not happen all of a sudden. It happened after the fall of Lehman brothers and Merrill lynch, it happened after the government bailouts for the global mortgage giants Fannie mae and Freddie Mac and also the great American insurance company, American international group. All these collapses have triggered a kind of chain reaction where wealthy investors have pulled out in advance and are sitting tight while the small fry are left to fend off the carcasses of what is left.

In times like this, you are left to wonder whether it is best to just invest in a savings bank account and watch your money grow steadily with the rate of inflation. You might end up with a few decimal point percentage rate of interest after factoring in the inflation rate. This puts you in the position where you just cannot live off your savings unless you want to watch it deplete slowly and you count the days to your death.

But all options are not lost. Certificates of deposits are still reliable if the terms and conditions that are agreed up on are concrete. You can also invest in money market accounts that are FDIC insured. But if you decide to go with money market funds, you must ensure that you have just the minimum deposit in the fund. If the fund is doing particularly well, you can always transfer money from your liquid savings bank account onto the money market fund. Also try to go with large fund managers or companies which can afford to repay you according to the commitments made if the fund were to go sour. Try getting a good broker to recommend a solid fund so that you can be rest assured that you will at least get what is stated in the terms and conditions.