Are Money Market Funds Safe?

Although consumers have viewed money-market funds as a nearly risk-free investment for short term bonds, that is not the case at all and there is proof to back it up. When the American International Group had to be bailed out by the federal government it called into question a lot of things that the public believed about money-market funds, revealing them to be not quite as infallible as people once thought they were. The bankruptcy of the Lehman Brothers’ also contributed to all of the new questions which have been popping up recently as to whether or not investments made in these money-markets are safe and virtually risk-free which apparently is not the case.

Just because there have been problems with this money-market doesn’t mean that you should cash out and put all of in a bank account insured by the FDIC. Those who are starting to question the very nature of their investment should instead take a closer look at the details of how their fund is managed rather than doing something extreme like cashing out. Most bank accounts gain interest at an extremely slow rate, meaning that there is very little return on what you initially put in, so money-market funds can be a good investment if you are willing to accept some of the different risks going in.

There have been a number of brokerage firms trying to calm down those customers who are starting to worry about their investment because of the recent trouble with certain financial institutions in the U.S. Firms such as Vanguard have released information on where exactly their assets are located in an effort to try and reassure those who are starting to worry about where there money is going. Despite the panic that is sweeping the nation, things are not as bad as they seem right now and they have certainly been worse. Fidelity was among the other companies that recently issued a series of questions and answers regarding how confident the company itself is in the safety of their money-market funds.

There are a number of tips that people who are thinking about investing their money in a money-market will want to think about before going forward, such as where specific funds invest their money as well as being hesitant with regards to any funds that pay yields which are above the average; because it could indicate that the people who are managing the money are taking bad risks.

The more you know about these money-markets the better of a decision you will end up making when it comes to whether or not you should put your money into one of these funds. Although almost everyone is afraid to make a move because of all the recent events involving brokerage firms going bankrupt, it can still be a good idea to put your money into one of these. You will find that these funds come in two different types, including prime funds which involve investing debt that is not backed by the federal government. One of the reasons why so many people have trusted money funds with their investments is because they only hold U.S treasury securities which mean that there is very little risk involved for individual investors. Those which do not do this are not worth your time and you should simply move on to a fund that you can trust. Making all the right decisions when it comes to where you place your money is important and it is something that you should take time to do.

It is important to remember that you do end up paying a price for safety when it comes to these money-markets. Although most of the time they are considered to be safe, money funds which are “treasury-only” tend to not yield a whole lot in general and during financial times like this the payoff is extremely small. People who are starting to get somewhat nervous about just how safe their money is will want to consider a few key things, including when not to worry. Those who invested with firms such as Vanguard and Fidelity will want to stop worrying because in the event that some of their investments go bad, they will have the ability to support the money they spend on them. You might want to trade in the prime fund that you have invested in for a fund that is U.S government treasury-only because of the fact that they tend to be much more secure and virtually risk free, though you may not earn as much in one of these funds.

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