This morning Treasury came out saying it would backstop money market mutual funds, shoring up investor confidence to prevent a mass exodus. As I wrote yesterday, that’s the much bigger threat to money markets right now—mass redemptions, not funds marking down the value of bad assets (e.g., commercial paper from the now-bankrupt Lehman Brothers).
You can read my entire story here, but if you want to cut to the chase, just read this part:
So what should you do now? Nothing, right? Okay, maybe there are a few small things. For starters, look at the yield on your money market fund and compare it to the sector. Naturally, you want the highest return on your money. Except that maybe you don’t. Higher yields usually mean riskier investments — more commercial paper, say, as opposed to Treasuries. Last Friday, before the Lehman implosion, Reserve Primary Fund was the second highest-yielding fund of the 100 largest tracked by Crane Data. For months before that, it was in the No. 1 slot. “You want to act like the smart caribous and stand in the middle of the pack,” says Crane. And, of course, make sure your fund is at a big firm that has the wherewithal to back it up, should it come to that.
Barbara!