Print

Email story

Comment

Letter to the editor

Columns

No guarantee with monkey market fund, but a pretty safe bet

Could your money market mutual fund be on the verge of "breaking the buck?" We expect money funds to maintain a stable price of $1 per share, but lately we've been reminded that there are no guarantees.

By Helen Huntley, Times Personal Finance Editor
Published November 25, 2007

Could your money market mutual fund be on the verge of "breaking the buck?" We expect money funds to maintain a stable price of $1 per share, but lately we've been reminded that there are no guarantees. Several funds apparently are so close to going under $1 that sponsoring fund companies have said they are ready to put up their own money to keep shareholders from losing theirs.

Money funds - which hold about $3-trillion in assets - are popular precisely because they are super safe places to stash cash until you need it. You can earn a decent return and get your money back any time you need it - or at least that's the way it's supposed to work.

Investor Carolyn Sewell of Inverness worries about "getting a high interest rate, but losing principal" if her money fund could be devalued.

The history of the money fund industry should ease investors' fears, said Connie Bugbee, managing editor of the Money Fund Report, which has been tracking money funds for more than 30 years. She says only one money fund has "broken the buck," falling below $1 a share, and that wasn't a fund for retail investors. Instead, she said, sponsors always have stepped up to the plate whenever a fund got uncomfortably close to that threshold. She said there were "a dozen or so" bailouts in the mid 1990s.

Now we're seeing them again. Problems in the mortgage market have hurt the prices of all kinds of asset-backed securities, including short-term investments owned by money funds.

Bank of America said it will spend $300-million to support prices of a group of Columbia Management money funds sold to individual investors. Credit Suisse, Legg Mason, SEI Investments and SunTrust have taken steps to support their funds. Support can take various forms, including buying troubled securities for more than they are worth or offering lines of credit that allow funds to hold onto securities rather than selling them into a down market.

Sponsors are willing to put up the money because their reputations are on the line.

"If a manager were to break the buck, it would send extreme reverberations through the investment community," said Clearwater financial planner Ray Ferrara of ProVise Management Group. "Confidence would not just be lost in the money market fund, but the impact could easily spill over to the other funds."

While he doesn't think money fund investors need to be worried, he said there is a reason to be concerned about investments in other types of short-term funds that were promoted as similar to money funds but with slightly higher yields.

If you are concerned about money fund safety, you have options:

- Diversify. Divide your money among two or more money funds of different types or from different sponsors.

- Switch to government funds. Some funds buy only government securities, which provides greater security but at a lower yield.

-Get a bank account. Bank money market accounts and CDs are covered by FDIC insurance.

-Examine your holdings. Talk to your customer service representatives or use a service like Morningstar to check on credit ratings and average maturity (longer is riskier). High yields often are a sign that a fund is taking above-average risks.

[Last modified November 23, 2007, 19:38:12]