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Money market funds weathering the storm

Money market funds are meant to be safe and liquid, but many have been damaged by the rocky credit markets. What's an investor to do?

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At least 10 money market funds have been bailed out by firms looking to ensure the $1 per share price and protect investors from losses. In addition, the Securities and Exchange Commission says it expects five other money market funds to be similarly propped up. To date, no funds have slipped below the $1 mark, but Bank of America, Wachovia and SunTrust are among the financial institutions that have intervened to keep afloat funds offered to their customers.

Many money market fund advisers are dumping at least some of their exposure to asset-backed commercial paper and structured investment vehicles, or SIVs, that have lost value due to downgraded credit ratings. But financial planners who want to reduce their clients' exposure to potentially troubled money market funds say it's difficult, at best, to find out how many SIVs various money funds hold.

"We checked into a couple of large institutions and found that the information was wanting as far as full disclosure of current holdings and any exposure they might have to some problems," says Herb Hopwood, president of Hopwood Financial Services in Great Falls, Va.

Money fund assets in 2008

Mark Gilbert, principal at Reason Financial Advisors in Northbrook, Ill., did some investigating and transferred clients' money from a prime money market fund to a government fund at the same company.

"It became apparent that many more of the underlying securities in these types of funds were subject to principal loss," he says. "We just didn't have the same level of confidence that the fund companies would step in to keep the fund from falling below the dollar. The company issued a statement and it seemed clear that they weren't going to commit one way or another as to the idea of keeping the fund from falling below the dollar."

Don't burn down the house
Peter Crane, publisher of Money Fund Intelligence and Crane Data, doesn't make light of the situation but says individual investors who have no evidence something may be amiss in their money market fund should stay put.

"People moving from prime to government money market funds or Treasuries are shooting themselves in the foot," he says. "Look at the yield you're going to lose. It's like burning your house down to get rid of a mold infestation.

 
 
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