Preserving Capital

[michaelrack]

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I have variety of retirement accounts, primarily old 403b/457 accounts, at AIG VALIC and TIAA-CREF. With the recent problems that money market funds are having, would the safest place for preserving capital be in a money market fund or a guaranteed return account? At AIG VALIC I have my money divided between money market, short term fixed (have to leave money in there at least 3 months), and fixed account (can withdraw up to 20% per year)

 

[michaelrack]

Lol, is this the same guy that said it was a good idea to be in vanguard funds in the other thread?? Seems like u getting scared after last week's market haha.

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I am not scared of the markets, and in my SIMPLE IRA continue to go in and out of Vanguard equity funds. My question refers to brokerage failure/money market funds breaking the buck. The SIPC insures money market funds from brokerage failure, but it treats money market funds as securities and not as cash. In other words, there is no SIPC protection if your money market fund breaks the buck because it owns commercial paper that becomes worthless, but the SIPC does protect you from brokerage failure. I guess my question is, how does the SIPC treat guaranteed return funds??

 

[lord_jeebus]

The Treasury Department got scared last week and is now guaranteeing money market funds, with $50 billion dedicated to them so far. Given the market panic associated with them, I think they would be quite aggressive about keeping them from breaking the buck.

http://www.bloomberg.com/apps/news?pid=20601087&sid=ajCjBX3zUQRw&refer=home

 

[michaelrack]

thanks for the tip and link. I knew that the gov was talking about guaranteeing money market funds, I didn't know that it had been put in place.

 

[The White Coat Investor]

If you're worried about it use Vanguard's Treasury MMF rather than Prime MMF. There is no commercial paper in the treasury fund.

Nice suggestion Phat....take his short-term, safe money and buy a Mickie-D's franchise with it?

 

[michaelrack]

If you're worried about it use Vanguard's Treasury MMF rather than Prime MMF. There is no commercial paper in the treasury fund.

Nice suggestion Phat....take his short-term, safe money and buy a Mickie-D's franchise with it?

👍
thanks for the tip, I'll look into Vanguards Treasury MMF.

 

[michaelrack]

read the other thread where he said to put money in index funds. McD is much safer by far. How many do you see go out of business. the McD's earn in profit $300k+ a year. the best ones earn $1-2 M a year. much safer than index funds.


moreover, if one truly wants capital preservation, one needs an inflation hedge. you're losing 4-5% on your greenbacks a year.

I like the Vanguard index funds because they have low fees and do a good job of mimicking their respective index.

I don't mind taking a risk when I am being paid to take the risk (higher average rate of return on equity fund than other funds in general). However, I want the money I have in money market funds to be absolutely safe. I appreciate ActiveDutyMD's advice.

Inflation is important. Over the long term, I am making a higher rate of return on my investments than the inflation rate.

I do have money invested in a sleep lab, also. I don't think I will invest in McDonald's.

 

[Bobblehead]

I don't think Vanguard permits linking directly to the articles but on the front page (no login required) there is a story regarding "Vanguard considers Treasury guaranty program for money market funds" They will make a decision by October 8th.

My personal feeling is that that Vanguard MMF are unlikely to break the buck and I am very comfortable leaving my MMF money in Vanguard. I used the calculator here which is provided by one of the regulars at the Diehards.org forum to figure out which one was best for my particular tax situation.

I'm still confident of my selection so I have not moved out of that particular fund.