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Thursday 13 October 2011
Sunday 9 October 2011
Money Market Funds Enter a World of Risk
Money market funds have been among the few places that investors could put their cash and sleep peacefully.
At the moment, that is not necessarily true.
On Tuesday, the Reserve Primary Fund, a giant money market fund whose parent helped invent that investment, said its customers would lose money. Instead of each share being worth a dollar for every dollar invested, it said its customers’ shares were worth only 97 cents. In Wall Street parlance, it “broke the buck,” a rare occurrence.
So far, it appears that no other money market funds have fallen below a dollar a share. And other money market managers have hastened to reassure investors that their money is safe. But the Primary Fund’s announcement did raise this question: What, in today’s world, is truly safe?
After all, the Primary Fund’s troubles did not occur in isolation. They followed the disappearance of both Lehman Brothers and Merrill Lynch, not to mention the government bailouts of the mortgage finance giants Fannie Mae and Freddie Mac and the insurance company American International Group. And if you haven’t already forgotten, there was the failure of the California thrift IndyMac in July.
And that’s why, in this market, financial advisers agreed on Wednesday, consumers need to become their own chief investment officers, even when it comes to something as simple as finding a place to put their cash.
“One by one, all of my safe havens aren’t so safe anymore, and that’s a bad thing,” said Matthew Tuttle, a certified financial planner and president of Tuttle Wealth Management in Stamford, Conn.
“It used to be O.K. to have money in a CD, but now you have to worry, ‘Is my bank going to go under?’ ” he added. “You used to be able to buy a guaranteed annuity from an insurance company, but now you have to worry, ‘Is my insurance company going to go under?’ Or, you can have auction-rate preferred securities, but now there is no market.”
Before you pull your cash out of your money market fund, you need to understand what you own. There is a big difference between money market mutual funds and the money market deposit accounts at a bank (and banks sometimes sell both).
Money market funds are essentially mutual funds that invest in securities that, until this week, were deemed relatively low risk. Those include government securities, certificates of deposit, asset-backed commercial paper and other highly liquid securities.
The Primary Fund got in trouble because some of its investments were in Lehman Brothers’ debt. To stop what is in essence a run on the fund, the Primary Fund has stopped all redemptions for up to seven days.
A money market deposit account, on the other hand, is entirely different. It is an interest-bearing bank account that is insured — up to $100,000 per account and up to $250,000 for some retirement accounts — by the Federal Deposit Insurance Corporation. Joint accounts are insured for $100,000 per account holder.
If you had been putting your money into a money market account because you wanted to avoid all risk, then you should consider the money market deposit accounts and other accounts insured by the F.D.I.C., like certificates of deposit and regular checking and savings accounts.
There are also Treasuries. But because so many investors were rushing into them on Wednesday, the yields have been driven down. “There is no yield,” said Saxon Birdsong, chief investment officer of Baltimore-Washington Financial Advisors. “It’s just a safety play.”
If you decide to invest — or stay — in a money market fund, there are several things you should keep in mind.
When it comes to money market funds, bigger may be better, several financial advisers said. Many investors use the funds that happen to be with the brokerage firm they are doing business with because it’s convenient to sweep money between accounts. But you should make sure your money market account is with a large, diversified money management company that would have the resources to make you whole, even if its funds ran into trouble.
Mr. Tuttle said companies like Fidelity and Vanguard fit into this category.
“I would be less comfortable with a smaller money management fund that didn’t have a lot of assets and wasn’t making a lot of money,” he said. “From my standpoint, I have a very high comfort level that if a Fidelity money market fund had toxic whatever, they would step up with the money from somewhere else to keep the buck.”
Once you decide on a provider, read the prospectus carefully. If you don’t understand the investments, call the company and ask for more details.
“I would encourage investors to not stop asking questions until they have complete comfort and peace about what they own,” said Karin Maloney Stifler, a certified financial planner with True Wealth Advisors in Hudson, Ohio.
And if you are still nervous, ask your current mutual fund company or brokerage if it has a Treasury or government money market fund that invests only in Treasury securities, said Greg McBride, senior financial analyst at Bankrate.com, a personal finance Web site.
“You will have to settle for a lower yield,” he said, “but it takes risk off the table.”
Indeed, this is one of those times when you shouldn’t necessarily choose a fund because it has a high yield. That higher yield could indicate that the fund is investing in riskier securities.
“This is a painful but poignant reminder that anything that is paying you a higher yield, you have to assume is carrying a higher risk,” said Peter Crane, president of Crane Data, which tracks money market mutual funds.
Finally, investors should diversify cash holdings, just as they would with a stock and bond portfolio.
“If you have money market mutual funds with multiple providers, you are hedging against the risk that any one of them will encounter problems that they can’t survive,” Ms. Stifler said.
But if you don’t have a strong stomach for the slightest risk, stick with investments that are F.D.I.C. insured, even if you need to sacrifice a little yield.
After all, “this is a portion of your portfolio that should help you sleep at night, not keep you awake,” Mr. McBride said.
The Investment Company Institute, the mutual fund industry’s trade group, compiled a list of statements late Wednesday from money-market mutual fund managers that assured investors their funds were safe. Here are the links to the fund company’s statements:
Blackrock (pdf)
Columbia Management (pdf)
Evergreen Investments
Federated Investors (pdf)
Franklin Templeton
Invesco (pdf)
Legg Mason(pdf)
MFS (pdf)
Oppenheimer Funds
Pimco
Schwab (pdf)
State Street
T. Rowe Price
Vanguard
Douglas Healey for The New York Times
Matthew Tuttle said money management funds at large brokerage firms can be reassuring for investors.
Multimedia
Steve Ruark for The New York Times
Saxon Birdsong said putting money in Treasuries now is a “safety play.”
Readers' Comments
Readers shared their thoughts on this article.
On Tuesday, the Reserve Primary Fund, a giant money market fund whose parent helped invent that investment, said its customers would lose money. Instead of each share being worth a dollar for every dollar invested, it said its customers’ shares were worth only 97 cents. In Wall Street parlance, it “broke the buck,” a rare occurrence.
So far, it appears that no other money market funds have fallen below a dollar a share. And other money market managers have hastened to reassure investors that their money is safe. But the Primary Fund’s announcement did raise this question: What, in today’s world, is truly safe?
After all, the Primary Fund’s troubles did not occur in isolation. They followed the disappearance of both Lehman Brothers and Merrill Lynch, not to mention the government bailouts of the mortgage finance giants Fannie Mae and Freddie Mac and the insurance company American International Group. And if you haven’t already forgotten, there was the failure of the California thrift IndyMac in July.
And that’s why, in this market, financial advisers agreed on Wednesday, consumers need to become their own chief investment officers, even when it comes to something as simple as finding a place to put their cash.
“One by one, all of my safe havens aren’t so safe anymore, and that’s a bad thing,” said Matthew Tuttle, a certified financial planner and president of Tuttle Wealth Management in Stamford, Conn.
“It used to be O.K. to have money in a CD, but now you have to worry, ‘Is my bank going to go under?’ ” he added. “You used to be able to buy a guaranteed annuity from an insurance company, but now you have to worry, ‘Is my insurance company going to go under?’ Or, you can have auction-rate preferred securities, but now there is no market.”
Before you pull your cash out of your money market fund, you need to understand what you own. There is a big difference between money market mutual funds and the money market deposit accounts at a bank (and banks sometimes sell both).
Money market funds are essentially mutual funds that invest in securities that, until this week, were deemed relatively low risk. Those include government securities, certificates of deposit, asset-backed commercial paper and other highly liquid securities.
The Primary Fund got in trouble because some of its investments were in Lehman Brothers’ debt. To stop what is in essence a run on the fund, the Primary Fund has stopped all redemptions for up to seven days.
A money market deposit account, on the other hand, is entirely different. It is an interest-bearing bank account that is insured — up to $100,000 per account and up to $250,000 for some retirement accounts — by the Federal Deposit Insurance Corporation. Joint accounts are insured for $100,000 per account holder.
If you had been putting your money into a money market account because you wanted to avoid all risk, then you should consider the money market deposit accounts and other accounts insured by the F.D.I.C., like certificates of deposit and regular checking and savings accounts.
There are also Treasuries. But because so many investors were rushing into them on Wednesday, the yields have been driven down. “There is no yield,” said Saxon Birdsong, chief investment officer of Baltimore-Washington Financial Advisors. “It’s just a safety play.”
If you decide to invest — or stay — in a money market fund, there are several things you should keep in mind.
When it comes to money market funds, bigger may be better, several financial advisers said. Many investors use the funds that happen to be with the brokerage firm they are doing business with because it’s convenient to sweep money between accounts. But you should make sure your money market account is with a large, diversified money management company that would have the resources to make you whole, even if its funds ran into trouble.
Mr. Tuttle said companies like Fidelity and Vanguard fit into this category.
“I would be less comfortable with a smaller money management fund that didn’t have a lot of assets and wasn’t making a lot of money,” he said. “From my standpoint, I have a very high comfort level that if a Fidelity money market fund had toxic whatever, they would step up with the money from somewhere else to keep the buck.”
Once you decide on a provider, read the prospectus carefully. If you don’t understand the investments, call the company and ask for more details.
“I would encourage investors to not stop asking questions until they have complete comfort and peace about what they own,” said Karin Maloney Stifler, a certified financial planner with True Wealth Advisors in Hudson, Ohio.
And if you are still nervous, ask your current mutual fund company or brokerage if it has a Treasury or government money market fund that invests only in Treasury securities, said Greg McBride, senior financial analyst at Bankrate.com, a personal finance Web site.
“You will have to settle for a lower yield,” he said, “but it takes risk off the table.”
Indeed, this is one of those times when you shouldn’t necessarily choose a fund because it has a high yield. That higher yield could indicate that the fund is investing in riskier securities.
“This is a painful but poignant reminder that anything that is paying you a higher yield, you have to assume is carrying a higher risk,” said Peter Crane, president of Crane Data, which tracks money market mutual funds.
Finally, investors should diversify cash holdings, just as they would with a stock and bond portfolio.
“If you have money market mutual funds with multiple providers, you are hedging against the risk that any one of them will encounter problems that they can’t survive,” Ms. Stifler said.
But if you don’t have a strong stomach for the slightest risk, stick with investments that are F.D.I.C. insured, even if you need to sacrifice a little yield.
After all, “this is a portion of your portfolio that should help you sleep at night, not keep you awake,” Mr. McBride said.
The Investment Company Institute, the mutual fund industry’s trade group, compiled a list of statements late Wednesday from money-market mutual fund managers that assured investors their funds were safe. Here are the links to the fund company’s statements:
Blackrock (pdf)
Columbia Management (pdf)
Evergreen Investments
Federated Investors (pdf)
Franklin Templeton
Invesco (pdf)
Legg Mason(pdf)
MFS (pdf)
Oppenheimer Funds
Pimco
Schwab (pdf)
State Street
T. Rowe Price
Vanguard
How to Make Money Marketing
Nowadays, online entrepreneurs are using articles to generate leads and increase their conversion rate. Writing is a very effective way to capture customers’ attention and interest. By distributing such write-ups on the internet, the chance of a business to get a wider audience is high. Business owners are also hiring freelance writers and bloggers to spread the word for them. Compensation depends on the person’s skills and years of experience. If you have a passion in writing, this is your opportunity to make money online.
The beautiful truth of the matter is that you don’t have to be a professional writer to enter this industry. As a matter of fact, they won’t require you to have a formal education in publishing or to attend a 4-year course for this particular job. As long as you can express your thoughts and opinion in English, with acceptable grammar of course, you can easily penetrate the writing business. So, practice your writing style now and think of what type of topic is interesting to readers.
When writing or blogging for a specific company or product, you have to remember that simple wordings are much more appreciated than encyclopedia-type articles. Think about your audience. Most likely they are ordinary people who want to immediately understand the article without the need of looking up in a dictionary for word meanings. So the rule is quite simple. As much as possible, just make it simple and avoid very long sentences that may confuse the reader.
What about topic? DIY (do it yourself) and other helpful information are much preferred today. People want to learn so share your knowledge about cooking, baking, gardening, blogging, web designing, etc. Informative articles and blog posts are very much in-demand. Take advantage by distributing your articles to major article directories, forums, blog networks, Ezines and web magazines.
If you have a website, set up a plugin or tool that will allow your followers to subscribe to your posts. In this way, they will automatically receive a notification every time you have a new published article. There are plenty of free tools out there but you can also buy a software that will make it easy for your readers to subscribe. Don’t forget to add FaceBook, Twitter and other social networking buttons to let your visitors share your articles fast and easy.
The beautiful truth of the matter is that you don’t have to be a professional writer to enter this industry. As a matter of fact, they won’t require you to have a formal education in publishing or to attend a 4-year course for this particular job. As long as you can express your thoughts and opinion in English, with acceptable grammar of course, you can easily penetrate the writing business. So, practice your writing style now and think of what type of topic is interesting to readers.
When writing or blogging for a specific company or product, you have to remember that simple wordings are much more appreciated than encyclopedia-type articles. Think about your audience. Most likely they are ordinary people who want to immediately understand the article without the need of looking up in a dictionary for word meanings. So the rule is quite simple. As much as possible, just make it simple and avoid very long sentences that may confuse the reader.
What about topic? DIY (do it yourself) and other helpful information are much preferred today. People want to learn so share your knowledge about cooking, baking, gardening, blogging, web designing, etc. Informative articles and blog posts are very much in-demand. Take advantage by distributing your articles to major article directories, forums, blog networks, Ezines and web magazines.
If you have a website, set up a plugin or tool that will allow your followers to subscribe to your posts. In this way, they will automatically receive a notification every time you have a new published article. There are plenty of free tools out there but you can also buy a software that will make it easy for your readers to subscribe. Don’t forget to add FaceBook, Twitter and other social networking buttons to let your visitors share your articles fast and easy.
Money Market: Introduction
Whenever a bear market comes along, investors realize (yet again!) that the stock market is a risky place for their savings. It's a fact we tend to forget while enjoying the returns of a bull market! Unfortunately, this is part of the risk-return tradeoff. To get higher returns, you have to take on a higher level of risk. For many investors, a volatile market is too much to stomach - the money market offers an alternative to these higher-risk investments. The money market is better known as a place for large institutions and government to manage their short-term cash needs. However, individual investors have access to the market through a variety of different securities. In this tutorial, we'll cover various types of money market securities and how they can work in your portfolio. Next: Money Market: What Is It? Table of Contents 1) Money Market: Introduction 2) Money Market: What Is It? 3) Money Market: Treasury Bills (T-Bills) 4) Money Market: Certificate Of Deposit (CD) 5) Money Market: Commercial Paper 6) Money Market: Banker's Acceptance 7) Money Market: Eurodollars 8) Money Market: Repos 9) Money Market: Conclusion Read more: http://www.investopedia.com/university/moneymarket/#ixzz1aIwyGDC9
Money market
This article is about the financial market. For the fund type, see Money market fund. For the bank deposit account, see Money market account.
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[edit] Overview
The money market consists of financial institutions and dealers in money or credit who wish to either borrow or lend. Participants borrow and lend for short periods of time, typically up to thirteen months. Money market trades in short-term financial instruments commonly called "paper." This contrasts with the capital market for longer-term funding, which is supplied by bonds and equity.The core of the money market consists of interbank lending--banks borrowing and lending to each other using commercial paper, repurchase agreements and similar instruments. These instruments are often benchmarked to (i.e. priced by reference to) the London Interbank Offered Rate (LIBOR) for the appropriate term and currency.
Finance companies, such as GMAC, typically fund themselves by issuing large amounts of asset-backed commercial paper (ABCP) which is secured by the pledge of eligible assets into an ABCP conduit. Examples of eligible assets include auto loans, credit card receivables, residential/commercial mortgage loans, mortgage-backed securities and similar financial assets. Certain large corporations with strong credit ratings, such as General Electric, issue commercial paper on their own credit. Other large corporations arrange for banks to issue commercial paper on their behalf via commercial paper lines.
In the United States, federal, state and local governments all issue paper to meet funding needs. States and local governments issue municipal paper, while the US Treasury issues Treasury bills to fund the US public debt.
- Trading companies often purchase bankers' acceptances to be tendered for payment to overseas suppliers.
- Retail and institutional money market funds
- Banks
- Central banks
- Cash management programs
- Arbitrage ABCP conduits, which seek to buy higher yielding paper, while themselves selling cheaper paper.
- Merchant Banks
[edit] Common money market instruments
- Certificate of deposit - Time deposits, commonly offered to consumers by banks, thrift institutions, and credit unions.
- Repurchase agreements - Short-term loans—normally for less than two weeks and frequently for one day—arranged by selling securities to an investor with an agreement to repurchase them at a fixed price on a fixed date.
- Commercial paper - Unsecured promissory notes with a fixed maturity of one to 270 days; usually sold at a discount from face value.
- Eurodollar deposit - Deposits made in U.S. dollars at a bank or bank branch located outside the United States.
- Federal agency short-term securities - (in the U.S.). Short-term securities issued by government sponsored enterprises such as the Farm Credit System, the Federal Home Loan Banks and the Federal National Mortgage Association.
- Federal funds - (in the U.S.). Interest-bearing deposits held by banks and other depository institutions at the Federal Reserve; these are immediately available funds that institutions borrow or lend, usually on an overnight basis. They are lent for the federal funds rate.
- Municipal notes - (in the U.S.). Short-term notes issued by municipalities in anticipation of tax receipts or other revenues.
- Treasury bills - Short-term debt obligations of a national government that are issued to mature in three to twelve months.
- Money funds - Pooled short maturity, high quality investments which buy money market securities on behalf of retail or institutional investors.
- Foreign Exchange Swaps - Exchanging a set of currencies in spot date and the reversal of the exchange of currencies at a predetermined time in the future.
- Short-lived mortgage- and asset-backed securities
Friday 7 October 2011
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