Last night, the Associated Press posted "Shakeout from money fund's collapse just starting", an excellent primer for investors and summary of recent events and issues involving money market mutual funds. AP says, "It's not the sexiest investment around, but the money-market mutual fund has become a high-demand safe haven for those who can no longer stomach the stock market.
The article continues, "Think again, however, if you believe you've found quiet refuge among the growing ranks of play-it-safe types who have nearly $3.9 trillion stashed in these investments. Money funds are generally safe places to park cash because they invest in the safest types of debt. Many buy government bonds such as Treasury bills, while so-called prime funds seek slightly higher yields but accept marginal risk by venturing into short-term corporate bonds."
The piece discusses the Lehman Brothers bankrupty and Reserve Fund, and says, "To prevent another such debacle, the industry and government regulators are weighing fundamental changes in how money funds operate. Their moves could make money funds even safer, but trim their already tiny yields.... The changes are swirling around an investment that's usually so low-profile it's typically compared with bank certificates of deposit." It quotes Peter Crane, publisher of the Money Fund Intelligence, "Everybody will look forward to a time when money funds are boring again."
Finally, the AP article, written by Mark Jewell, says, "Still, experts say there are no indications that investors will suffer losses anytime soon in any other money funds. But the Reserve mess spurred proposals for changes that are just beginning to ripple across the money fund industry, which now holds about 40 percent of the total $9.4 trillion in all U.S. mutual fund assets."
See also, AP's "4 tips on finding a good money-market mutual fund".
