Will your Money Market Fund Stay Afloat?

The SEC recently decided on new rules to govern money market mutual funds.  The decision reached stems from the financial crisis when several large money market funds “broke the buck” and became valued less than $1 a share as investors raced to withdraw their money from the funds.  The new regulations are designed to prevent that from happening again.

There are two primary types of money market funds; prime funds, which invest in corporate debt as well as government debt and money market funds that focus just on government and agency debt.  These new rules also only apply to prime funds.

The rules now require some prime money market funds to remove their fixed $1 a share price and allow it to float like other mutual funds and also limit withdrawals from the funds in times of market stress or charge extra fees to redeem shares.  The move is in hopes that investors become more comfortable with a changing value for their cash holdings.

What impact will this have on your cash held in money market funds?  The short answer is nothing immediately.  There will be some time before the new rules take effect.  However, you may be subject to the new rules listed above.  We will be researching the issue and evaluating options.  We wanted to make sure you were aware of these changes and that we may be discussing it with you in further detail in the future.

 

Index Performance                                       July       YTD     Trl 1 yr.        

US Stock (Russell 3000)                                    -1.97%     4.83%    16.37%
Foreign Stock (FTSE AW ex US)                      -0.91%     4.99%    16.10%
Total US Bond Mkt. (BarCap Aggregate)       -0.25%     3.66%     3.97%
Short US Gov. Bonds (BarCap Gov 1-5 Yr)    -0.21%     0.56%      0.72%
Municipal Bonds (BarCap 1-10yr Muni)           0.15%     3.36%      4.31%
Cash (ML 3Month T-Bill)                                   0.00%     0.02%     0.05%

 

About

Raffa Wealth Management is an independent investment advisor providing nonprofit organizations, high net-worth investors, and qualified retirement plans with a full range of investment consulting services.  We were established to fill the need for transparency, clarity, and vision in the professional management of investment assets.   Visit us at www.raffawealth.com

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