Wednesday, September 17, 2008

Reserve Primary Money Market Fund Falls Below $1 a Share

I used to be a shareholder in this in my Roth IRA account. Luckily Ameritrade switched to their own money market funds instead. Money market funds are safer than bank deposits in one sense as they are diversified across the debt of many entities rather than being entirely concentrated in one bank. On the other hand, that makes some loss more likely though it is likely to be smaller. Usually losses are small enough, I guess, that the funds can just reduce their interest rate to cover the capital losses? In the US, bank deposits under $100,000 are safer than money market funds because of the FDIC insurance. There is no deposit insurance in Australia. We have a bank account with Commonwealth Bank and a "Cash Management Trust" with Adelaide Bank. You'd think the latter which is structured as a mutual fund is a money market fund. And I think it used to be. But in fact the fund's only asset is a loan to Adelaide Bank. I don't think there is any risk of Adelaide Bank going under but worth knowing what the risks are all the same.

No comments: