Money Markets Question

[fourthirtysix]

I know Money Markets are not FDIC insured, but given the large existing credit bubble, would there be any major risks to typical brokerage Money Market accounts (Merrill, Schwab, etc) in the event of a credit bubble bursting?

PS: This website is a great forum for learning.

While there are alot of people who know what they are talking about posting to the threads, there are alot of novices reading the threads (like myself) and I appreciate the time that the posters take to explain things in more general terms.

[Jim Nickerson]

Re: Money Markets Question

I know Money Markets are not FDIC insured, but given the large existing credit bubble, would there be any major risks to typical brokerage Money Market accounts (Merrill, Schwab, etc) in the event of a credit bubble bursting?

PS: This website is a great forum for learning.

While there are alot of people who know what they are talking about posting to the threads, there are alot of novices reading the threads (like myself) and I appreciate the time that the posters take to explain things in more general terms.

I do not know what is absolutely so safe that one could not loose in it, but for my level of knowledge, I trust a lot of money into Scwhab Value Advantage money fund. It is paying 4.91% simple and 5.03% compounded I believe. I think Schwab has insurance of up to 4M per account to insure against some sort of loses. I assume there is some protection in that. If such as that failed, I probably would go after Chuck himself with some sort of weapon in hand.

[Finster]

Re: Money Markets Question

I know Money Markets are not FDIC insured, but given the large existing credit bubble, would there be any major risks to typical brokerage Money Market accounts (Merrill, Schwab, etc) in the event of a credit bubble bursting?

PS: This website is a great forum for learning.

While there are alot of people who know what they are talking about posting to the threads, there are alot of novices reading the threads (like myself) and I appreciate the time that the posters take to explain things in more general terms.

There are risks (aside from the usual inflation risk) to money markets, but I wouldn't call any of them "major". Occasionally a money fund will "break the buck" (meaning its NAV falls below $1), but even then it's relatively common for the fund's sponsor to make up the difference. There's just no guarantee it will.

Some funds, however, are arguably more safe than an FDIC-insured bank account. Those are usually those invested solely in TBills. Such a "treasury-only" money fund generally only poses the risks inherent in the underlying instruments, which are neglible in nominal terms. The only exceptions to that would be due to bad management, and even that's unlikely since people running treasury-only money funds know that their investors are using them for a risk-averse holding.