Comments on: Risks in Money Market Funds http://thefinancebuff.com/2007/08/risks-in-money-market-funds.html like a friend telling you about money ... Thu, 19 Nov 2009 19:44:17 -0600 http://wordpress.org/?v=2.8 hourly 1 By: Ted http://thefinancebuff.com/2007/08/risks-in-money-market-funds.html/comment-page-1#comment-211 Ted Thu, 16 Aug 2007 12:48:00 +0000 http://blog.thefinancebuff.com/?p=150#comment-211 Anyone that believes that anything in this world is "100% safe" is deluding them self. Anyone that believes that anything in this world is "100% safe" is deluding them self.

]]> By: Anonymous http://thefinancebuff.com/2007/08/risks-in-money-market-funds.html/comment-page-1#comment-210 Anonymous Wed, 15 Aug 2007 19:59:00 +0000 http://blog.thefinancebuff.com/?p=150#comment-210 I agree partly with your post, but would note that many people who put cash in money markets do so because they believe it to be 100% safe.<br/><br/>You point out that in fact it is not 100% safe. Even worse, there is at least some correlation between the solvency of the money market funds and the companies issuing the debt they are investing in.<br/><br/>This is precisely what you don't want. Part of the point of diversification (stocks, bonds, cash) is to ensure that when one portion of the portfolio suffers, the others help take up the slack.<br/><br/>In fact, in the case of a complete economic meltdown (as would need to occur for equity index funds to suffer massive losses), I explicitly do not want my "cash" accounts to suffer similar fates.<br/><br/>I moved several large money market holdings from Vanguard Prime to the Admiral Treasury funds yesterday. I live in a high tax state, so the yield difference is very small and the extra security seems worth it. I agree partly with your post, but would note that many people who put cash in money markets do so because they believe it to be 100% safe.

You point out that in fact it is not 100% safe. Even worse, there is at least some correlation between the solvency of the money market funds and the companies issuing the debt they are investing in.

This is precisely what you don't want. Part of the point of diversification (stocks, bonds, cash) is to ensure that when one portion of the portfolio suffers, the others help take up the slack.

In fact, in the case of a complete economic meltdown (as would need to occur for equity index funds to suffer massive losses), I explicitly do not want my "cash" accounts to suffer similar fates.

I moved several large money market holdings from Vanguard Prime to the Admiral Treasury funds yesterday. I live in a high tax state, so the yield difference is very small and the extra security seems worth it.

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