Advertisement
Saving

Why the Cash in Your Money Fund Is Safe

Fund sponsors are migrating toward strong European financial institutions.

Questions about the safety of money market funds have lingered ever since the Reserve Primary Fund’s share price dropped below $1 in 2008 after writing off debt issued by Lehman Brothers, which filed for bankruptcy. Now investors have another worry: The ten largest prime U.S. money funds -- which may invest in short-term corporate and government debt -- have almost 50% of their total assets invested in European financial institutions, according to Fitch Ratings. Given the jitters over some European countries’ government debt, should you worry that the price of another money fund will drop below $1?

Advertisement - Article continues below

No, says Pete Crane, of Crane Data: “The trillions of dollars in assets and tens of millions of investors in money funds invite government intervention if it becomes necessary.” Fund sponsors themselves are migrating to the largest and strongest European financial institutions, says Viktoria Baklanova, a Fitch Ratings analyst.

Three of the biggest -- JPMorgan, Fidelity and Vanguard -- do not hold securities issued by financial institutions in the most vulnerable countries: Greece, Ireland, Italy, Portugal and Spain. JPMorgan and Fidelity also shortened the maturity of their funds’ portfolios to ensure the funds would have cash for redemptions. Vanguard shifted its foreign exposure to Australia, Canada, and European countries outside the euro zone. The top yielders in our tables have little or no exposure to euro debt.

If minuscule yields (the national average is 0.01%) still make you want to run for cover, FDIC-insured money market deposit accounts may be a better option. The top-ranked accounts yield 1.1%.

Advertisement
Advertisement

Most Popular

What Trump's Payroll Tax Cut Will Mean for You
Tax Breaks

What Trump's Payroll Tax Cut Will Mean for You

President Trump issued an executive order to suspend the collection of Social Security payroll taxes. How much could it save you?
August 13, 2020
8 Things You Must Know About Retiring to the Carolinas
retirement

8 Things You Must Know About Retiring to the Carolinas

From the mountains to the beaches, North Carolina and South Carolina offer retirees plenty of incentives.
August 14, 2020
7 Surprisingly Valuable Assets for a Happy Retirement
happy retirement

7 Surprisingly Valuable Assets for a Happy Retirement

If you want a long and fulfilling retirement, you need more than money. Here are the most valuable retirement assets to have (besides money), and how …
August 3, 2020

Recommended

The 7 Best Funds for Beginners
mutual funds

The 7 Best Funds for Beginners

New investors have it better than ever. The best mutual funds and ETFs for beginners feature no minimum investments, dirt-cheap fees and broad market …
July 30, 2020
Metropolitan West Corporate Bond Has a Bright Future
Making Your Money Last

Metropolitan West Corporate Bond Has a Bright Future

This new-ish corporate bond fund is comanaged by familiar faces.
July 23, 2020
Oakmark International Disappoints Us
Kip 25

Oakmark International Disappoints Us

When this fund is good, it shines relative to peers, but when it is bad, it fares far worse.
July 23, 2020
Protect Your Portfolio From Inflation
Financial Planning

Protect Your Portfolio From Inflation

It’s not an immediate threat, but some warning signs say to set up some defenses now.
July 23, 2020