Money market funds

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    What Are Money Market Funds?

    what are money market funds

    By , Associate Editor, Money Morning • @JimBach22 -

    What are money market funds?

    That's a question all risk-averse savers sitting on a savings account with its meager returns, or on a CD with its withdrawal penalties, should be asking themselves if they're looking for a liquid investment with better returns.

    Here's our look...

Article Index

What Are Money Market Funds?

By , Associate Editor, Money Morning • @JimBach22 -

what are money market funds

What are money market funds?

That's a question all risk-averse savers sitting on a savings account with its meager returns, or on a CD with its withdrawal penalties, should be asking themselves if they're looking for a liquid investment with better returns.

Here's our look...

How to Use Money Market Funds to Shield Your 401(k) from a Crash

By , Money Morning -

American workers with 401(k) plans are right to dread a stock market crash that would wipe out a big chunk of their hard-earned balances.

But instead of living in fear, it's possible to do something about it - thanks to the option of money market funds, which almost every 401(k) plan offers.

And the best part is, reallocating 401(k) investments to a money market fund couldn't be any easier.

Here’s how to get started…

Don't Let Mary Schapiro Tread on Your Money Market Funds!

By , Global Investing Specialist, Money Morning -


SEC chairman Mary Schapiro announced last week that she has set her sights on your money market funds.

I'm sorry, but that makes no sense at all.

Losses on money market fund investments have been trivial in the almost 40 years they have existed.

What's more, they haven't added to the tottering instability of global finance. Not one wit.

Her attempt to come down on money market funds is nothing more than crony capitalism at its most unpleasant.

The regulators, who under the Obama administration simply like regulating, are just in cahoots with the big banks, seeking to eliminate their competition.

In this case, what the banks would like to do is simply turn back the clock.

After all, in the 1960s, banks had a very easy life, because interest rates were regulated.

The old adage was "3-6-3" banking - borrow at 3%, lend at 6% and be on the golf course by 3 p.m.!

It was a good deal for the bankers but not such a good deal for those forced to lend to the banks at 3%--especially as inflation rose in the late 1960s to 4%, 5% and higher.

In fact, it was no wonder that when I first opened a U.S. bank account in 1971 that I was rewarded with a full set of bone china! Attracting savings was THAT profitable!

But all of this changed with the establishment of money market funds.

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Money Market Funds are in the Fight of Their Lives

By , Chief Investment Strategist, Money Morning • @ShahGilani_TW -

Money market funds aren't exactly the safe-haven investments they're cracked up to be.

In September 2008, when Lehman Brothers failed, money market investors fled funds in droves, exposing investors and capital markets across the globe to huge systemic risks.

Now, to better safeguard investors and prevent the commercial paper market from shutting down in future crises, SEC chairwoman Mary Schapiro is proposing to re-make the money market mutual fund industry in the image of banks.

The SEC staff is recommending money market funds set aside capital reserves, as banks are required to do, and fund sponsors issue stock or debt to bolster their positions as a "source of strength," as bank holding companies are expected to do.

Also, the staff recommended restricting redemptions under certain circumstances and potentially requiring funds to collect upfront fees to further cushion themselves in times of trouble.

Industry leaders immediately attacked the plan as an assault on their business. They're threatening to sue the SEC.

The battle ahead isn't just about changing an industry.

It is about reshaping modern finance, the future power of regulators, and the real world implications of moral hazard.

Money Market Funds Explained

Money market funds are mutual funds. Investors who buy shares are pro-rata owners of the underlying investments that funds hold.

Money market mutual funds are restricted by SEC rules under the Investment Company Act of 1940 to purchasing only the highest-rated debt of issuing companies. They also invest in government securities and repurchase agreements.

The duration of the debt instruments they hold cannot exceed 13 months and the average weighted maturity of their portfolios has to be 60 days or less. Additionally, funds can't hold more than 5% of one issuer, except for governments or repurchase agreements.

The first U.S. money market mutual fund, The Reserve Fund, was established in 1971 to directly compete with banks for investor deposits. At that time "Regulation Q" prohibited commercial banks from paying interest on checking accounts.

Money market funds quickly drew in investors looking to earn interest on cash positions.

By September 2008, the size of the oldest money fund in the U.S., the Reserve Primary Fund, was $64.8 billion. Total industry assets were $3.8 trillion.

Anatomy of a Money Market Fund Panic

On Sept. 15, 2008 Lehman Brothers filed for bankruptcy and everything changed.



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