 Dear
Dr. Don,
I have money in a Pacific Life money market account. I read that General Electric is dropping its $1 price and others are putting money in their accounts to shore up the $1 value. How can I tell if my account is OK or if I may face these issues down the road? Are money market accounts rated?
I've looked at what Pacific holds in this fund and there are no structured investment vehicles, but I can't tell you I'm comfortable.
-- Protective Philip
 Dear
Philip,
The investment managers of money market mutual funds work very hard to "protect the buck" when it comes to preserving
the value of a money market fund share. Unlike stock and bond mutual funds -- where the price of a share will fluctuate
with market conditions -- the value of a share in a money market mutual fund is pegged to $1, although the yield on the
fund will fluctuate with market conditions.
While all money market mutual funds invest in short-term debt obligations, the credit quality of the short-term debt
instruments varies. Treasury-only money market funds only invest in U.S. Treasury obligations. Government funds
expand the list to include government agency securities. Corporate money market funds will invest in the short-term
debt obligations of companies. Municipal money market funds invest in tax-exempt municipal securities.
Because a money market fund invests in short-term debt, there is, by definition, a lot of turnover in the fund's
investments. Reading the fund's prospectus can often do more to alleviate concerns about how the fund is investing
than looking at a listing of the investment portfolio at a point in time. If you aren't comfortable with a fund's
investment policy, you should consider voting with your feet and finding a different fund with an investment policy
that meets your tolerance for risk.
Money market accounts typically
don't carry a credit rating, but the investments
they buy do. There's a credit risk that a security
held by a fund will have its credit rating downgraded.
You can learn more in the Bankrate story
"How safe is your money market fund?"
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