Rookie_Investor
This might not be fair to Kiplinger, as the source is a competing website, but I read this interesting article and thought you guys might be interested in it as well. Below is an excerpt - the entire article can be viewed at: http://articles.moneycentral.msn.com/Investing/SuperModels/YourSafeMoneyIsntSoSafe.aspx?page=all (http://articles.moneycentral.msn.com/Investing/SuperModels/YourSafeMoneyIsntSoSafe.aspx?page=all)
Your 'safe' money isn't so safe
Did you abandon the roiling stock market for the security of a money market fund? Gulp -- the mortgage mess has probably put your investments there at risk, too.
By Jon Markman (http://articles.moneycentral.msn.com/Commentary/Experts/Markman/Jon_Markman.aspx) Investors are fleeing the volatility of the stock market at the year-end, according to industry data, and stashing the proceeds in supposedly nice, safe money market funds at the scorching rate of $18 billion per week.
Yet investors might only be exiting one danger zone and entering another, as a close look at money market funds at major U.S. brokerages reveals that most are invested in the same sort of dubious paper that has rocked the financial world in the past six months.
Although many money market funds have the word "cash" in their names -- leading investors to think that they are no more risky than a handful of paper money -- many are thinly veiled bets on the deteriorating mortgage market, a bet that has gone very bad for Wall Street, to the tune of hundreds of billions of dollars. The question now is how bad it could get for these supposedly safe funds. Of SIVs and sieves
If you don't believe it, I don't blame you. This hasn't received much attention. And brokerages neither make it easy for investors to discover what their money market funds are invested in nor make it a snap to switch into safer funds.
Yet a little detective work reveals that the 4.5%-plus annual yields on money market funds -- where most of the cash in brokerage accounts resides -- doesn't come from rock-solid U.S. Treasury bonds or bank certificates of deposit. Instead, the yields have been generated by a relatively new brand of mortgage-focused investment companies called special investment vehicles, or SIVs, that lately have been withering in value.
This is where the subprime-mortgage crisis really hits home, even for homeowners in good standing who have felt that the industry's difficulties were somebody else's problem. If you are among the tens of thousands of Charles Schwab customers who keep cash in the Schwab Value Advantage Money Fund (SWVXX (http://moneycentral.msn.com/detail/stock_quote?Symbol=SWVXX)), for instance, then you have had a subprime time bomb ticking away in your brokerage account. Likewise if you are a Smith Barney customer who keeps cash in that brokerage's gigantic Western Asset Money Market Fund (SBCXX (http://moneycentral.msn.com/detail/stock_quote?Symbol=SBCXX)). Sadly, these funds are just two among many....
go to the link above to read the rest of the article (it's too long to be posted here in it's entirety)
Your 'safe' money isn't so safe
Did you abandon the roiling stock market for the security of a money market fund? Gulp -- the mortgage mess has probably put your investments there at risk, too.
By Jon Markman (http://articles.moneycentral.msn.com/Commentary/Experts/Markman/Jon_Markman.aspx) Investors are fleeing the volatility of the stock market at the year-end, according to industry data, and stashing the proceeds in supposedly nice, safe money market funds at the scorching rate of $18 billion per week.
Yet investors might only be exiting one danger zone and entering another, as a close look at money market funds at major U.S. brokerages reveals that most are invested in the same sort of dubious paper that has rocked the financial world in the past six months.
Although many money market funds have the word "cash" in their names -- leading investors to think that they are no more risky than a handful of paper money -- many are thinly veiled bets on the deteriorating mortgage market, a bet that has gone very bad for Wall Street, to the tune of hundreds of billions of dollars. The question now is how bad it could get for these supposedly safe funds. Of SIVs and sieves
If you don't believe it, I don't blame you. This hasn't received much attention. And brokerages neither make it easy for investors to discover what their money market funds are invested in nor make it a snap to switch into safer funds.
Yet a little detective work reveals that the 4.5%-plus annual yields on money market funds -- where most of the cash in brokerage accounts resides -- doesn't come from rock-solid U.S. Treasury bonds or bank certificates of deposit. Instead, the yields have been generated by a relatively new brand of mortgage-focused investment companies called special investment vehicles, or SIVs, that lately have been withering in value.
This is where the subprime-mortgage crisis really hits home, even for homeowners in good standing who have felt that the industry's difficulties were somebody else's problem. If you are among the tens of thousands of Charles Schwab customers who keep cash in the Schwab Value Advantage Money Fund (SWVXX (http://moneycentral.msn.com/detail/stock_quote?Symbol=SWVXX)), for instance, then you have had a subprime time bomb ticking away in your brokerage account. Likewise if you are a Smith Barney customer who keeps cash in that brokerage's gigantic Western Asset Money Market Fund (SBCXX (http://moneycentral.msn.com/detail/stock_quote?Symbol=SBCXX)). Sadly, these funds are just two among many....
go to the link above to read the rest of the article (it's too long to be posted here in it's entirety)