Don’t Let a Broken Buck Break You
Source: http://feeds.feedburner.com/~r/qvmgroup/yrMF/~3/395120110/753Posted on Wednesday, September 17th, 2008 | In Market Commentary
You may have moved to the sidelines with cash to avoid the current market train wreck. If so, that was a good idea. But, how safe is your cash?
If the money market fund owns paper from failing companies, it could result in “breaking the buck”. That would mean a capital loss for you.
If your have money in a safe harbor, that harbor should actually be safe. The only truly safe harbor for short-term cash holdings is a 100% Treasuries money market fund.
We called for investors to switch money market assets to Treasuries-only money funds in August 2007 and again in July 2008. Today the call is even more relevant and more urgent.
This crisis will end, but until it does, you should not reach for money market yield. You should reach for cold comfort about capital preservation.
If Bear Stearns, Fannie Mae, Freddie Mac, Lehman Brothers and AIG can go insolvent, so can and probably will go many others.
Switch your money market assets to a Treasuries-only money fund. Two examples are Schwab’s SWUXX and Vanguard’s VUSXX. Fidelity has a Treasuries money market (FDLXX), but it is only required to by 80% Treasuries.
When the current credit meldown is well past, you can switch back to a higher yielding money fund, but today the name of the game is risk management, not pursuit of yield.
On a credit and default risk related matter, see our recent article about ETN counter party risk.
Richard Shaw
QVM Group LLC
Last 5 posts by Richard Shaw
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Bear Stearns, Buck Break, Fannie Mae, Freddie Mac, Lehman Brothers, Market Commentary, QVM Group LLC, Richard Shaw
 About Richard Shaw (http://www.QVMgroup.com)
Richard is a principal of QVM Group LLC, a fee-based investment advisor based in Connecticut with clients across the country. He provides investment coaching to "do-it-yourself" investors, and manages portfolios for those who prefer not to make their own decisions. His investment approach is based on value, asset allocation, benchmarking, expense control, risk management, customizing portfolios to each client's specific circumstances, and regular communication about strategy and performance. The QVM Group team also provides municipal refinance services, strategic business planning and financial analysis service for new ventures, private acquisition analysis, and custom investment research. Richard's extensive experience, includes serving on the Board of Directors of Aberdeen Asset Management PLC (London Stock Exchange: ADN), membership on the Board of Directors of Phoenix Investment Counsel (renamed Virtus Investment Advisors), a U.S. pension manager and investment advisor to the Phoenix Funds (renamed Virtus Funds), as well as serving as Managing Director of a series of offshore investment funds based in Luxembourg. He has led institutional asset management sales and had overall responsibility for management of a U.S. mutual funds broker-dealer. He was a charter investor and member of the Board of Directors of several internet companies, including Lending Tree prior to its IPO. He is a graduate of Dartmouth College. QVM Group LLC is a Registered Investment Advisor. Visit the QVM Group website http://www.qvmgroup.com/QVMinvest/ |
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