Money market fund failure

muzie_IHB

muzie_IHB

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<a href="http://www.bloomberg.com/apps/news?pid=20601087&sid=aAj1pHOSthQA&refer=home">Reserve Primary Money Fund Falls Below $1 a Share</a>



"Reserve Primary Fund became the first money-market fund in 14 years to expose investors to losses after writing off $785 million of debt issued by bankrupt Lehman Brothers Holdings Inc.



The fund, whose assets plunged more than 60 percent to $23 billion in the past two days, said the Lehman losses forced the net value of its assets below $1 a share, known as breaking the buck. Reserve Primary, the oldest money fund in the nation, fell to 97 cents a share and redemptions were suspended for as long as seven days.



"



I'm not sure what the implications of this are apart from the obvious "money market accounts not so safe". :-(



There's risk everywhere in the system, and increasingly everyday people are going to get hurt by this even more. And yet the market rallied big today. I think I'm going crazy... :-(
 
This scares me deeply. I dug around a few months ago and found my 401K's "safe" saving option is a ("stable value") fund that is 38% invested in mortgage-backed securities. I was completely shocked, yet I didn't know what else to put my savings in. Company stock? No. US stock indices? No. Foreign stock indices? No. Bonds? Heck, OK, some. Really not a lot of options there, and I think it's irresponsible at best to not offer a nice good-as-cash account. Let's all play "hunt for the smallest loser".
 
After reading a bit more about this, it looks like customers in this money market fund are set to lose only about 3% of their capital. So nobody's going to go broke on this - but of course when some consider a money market account as basically similar, or as safe as, a bank account, it sure is disturbing to see your account balance down 3%.
 
I just started a new job 2 months ago signed up for the 401k plan.

i'm puting the max 15,500 into the fedelity freedom 2030 fund a fund based around a target retirement rate.



so far no money has gone into this yet but the first payment (very little goes in soon)



all this crap has me scared am I better off to cancle the 401k for a while like a year or to and just put the money in my savings account for a future home down payment??



any ideas??
 
if you are that worried about it...why not keep the 401k (so you get the match) and invest in FCASH? It doesnt pay much, but if you are worried about declines, why not go there.



although, your decision is really whether you want 15k a year to go towards retirement or towards the home down payment





oops sorry, I was going to copy and paste the FCASH rates for you, but it turns out:



"For Retirement accounts like IRAs, your only Core account option is Fidelity Cash Reserves, a money market fund"



So that would be FDRXX not FCASH
 
well I have no real exposure yet. the flip side is im buying at a discount right now. The market always scares me a bit.



I guess 401k you have to think long term like 20 years-30 years.



thank for the advise maybe i will only contribute the 6% to get the maxximum match.
 
I only contribute to get the maximum match myself. 401Ks are too limited and inflexible for my taste.



401ks loses any tax-based avantage if either:

- Taxes in the future are higher than now (seems increasingly likely to me with balooning national debt and historically low tax rates)

- Or your income at retirement is lower than now (likely for most people, but not a given)

- or there is a possibility you may retire in another country (I'm not a US citizen, so could be the case for me).



Of course, you should never rely on an internet forum for financial advice :). See an advisor.
 
[quote author="ventouxbob" date=1221713556]well I have no real exposure yet. the flip side is im buying at a discount right now. The market always scares me a bit.



I guess 401k you have to think long term like 20 years-30 years.



thank for the advise maybe i will only contribute the 6% to get the maxximum match.</blockquote>


Not sure of your income bracket...but another way to invest that 15k, is to put the 6% in the 401k so you get the maximum match, then whatever is left over from the 15k, put it in a Roth so your money can grow tax free.
 
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