Buying a Money Market Fund

The financial headlines have been full of stories about the trouble experienced by a number of money funds. Large companies like Bank of America Corp. and Legg Mason Inc. among others have been forced to infuse their money market funds with money to cover for losses and prevent having to “break the buck” and allow their net asset value to fall below $1. The good news for money market fund investors is that the losses caused by complex investments designed to boost yields have been limited to a minority of mutual fund companies and those companies have made investors whole. Moving forward investors may want to better understand the underlying holdings in their money market funds and buy funds from a company which is large enough and finiancially stable enought to seem reasonably assured of infusing funds to cover any losses. The fallout is probably far from over, but money market fund managers will certainly have learned a lesson from their risky investments. The drop in yield which may occur due to a safer investing environment will be worth the peace-of-mind. Mutual fund companies who keep their money market funds with weighted-average maturities of less than 50 days and holdings in government securities or commercial paper rated AAA stand a better chance of providing a stable fund, but with yields which are still higher than U.S. Treasuries.

Investors can find a list of money market funds here.