Is a money market account safe enough?greenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread
I'm convinced it only makes sense to reduce stock and equity mutual fund exposure. One logical choice is to transfer into a money market account such as T. Rowe Price or Fidelity. However, if systematic financial calamity occurs, is there a risk that these funds could evaporate in a cloud of Y2K smoke? Even with my account statements in hand, couldn't these funds "bust a buck" and collapse in value? Should 401(k) investors consider early withdrawal, pay the penalties and hord cash or gold coins and bullion? Am I overreacting???
-- Douglas Cole (firstname.lastname@example.org), April 19, 1998
No, you aren't over-reacting. The trouble is that there's no way to plan for all possibilities, because what will do well in some will do badly in others. NB I am in UK: I don't know anything about USA tax law, 401K, etc.
In my book, there are probably four main scenarios:
1. Government collapses into anarchy. All paper becomes worthless. Gold, things to barter needed, plus much luck.
2. Inflation or Hyperinflation but government survives. All tangibles, government index-linked stocks good. Being heavily in debt actually good provided creditors don't get you before the debt becomes worthless. Equity (company stocks) good in the long term IF you can buy in after the stockmarket crashes and IF you can identify companies that won't go bust.
3. Deflationary depression (like 1930s). More or less opposite to 2. Fixed-interest government stocks best. Cash good if in hand or in a bank that doesn't collapse. Paying off debt in advance of this also a good idea. Gold likely to peak then collapse once it's clear that scenario 1 isn't happening.
4. Business as normal: I doubt it!
In addition you want to consider personal liquidity across a period where investments are frozen because computers are. This means more cash in hand than you'd usually consider.
-- Nigel Arnot (email@example.com), April 20, 1998.
Most money market funds are invested in short term banking and business instruments. If banks fail (likely, IMO) and businesses fail (also likely, IMO) then standard money markets may not be the best place. However, you can also get a Federal treasury money markets, invested in very short term Federal government debt, which should be more stable unless the entire government defaults on its debts (possible, I guess, but then your money market will be the least of you worries). We are going to put at least a portion of our porfolio in this kind of fund.
Hope this helps,
-- David Palm (firstname.lastname@example.org), April 20, 1998.
I have received advertisements on several occasions for newletters that purport to be well connected. They may actually be. Their view of the next crash, whenever it comes, and regardless of what triggers it, is that it will be a liquidity crash. I take this to mean that regardless of what value you have either on paper or in a computer memory you will not be able to get to it. This will, in turn, fuel a sell off in the market because everyone will be trying to get cash.
-- George Valentine (email@example.com), April 20, 1998.
If one believes that there will be a liquidity crash, but that the overall financial institutions will survive the long run, then where would one find mutual funds that lets one invest in Treasury's?
I have half of my tax-deferred portfolio parked in Fidelity, and will be moving it all into their gold fund later this week. My 401(K) is already in the Lexington Gold fund. However, I have been unable to find a fund with Fidelity that deals mostly with Treasury's.
-- Anthony Yen (firstname.lastname@example.org), April 20, 1998.
Anthony, Do you believe that the funds will survive y2k? George
-- George Valentine (email@example.com), April 21, 1998.
You might check out American Century Funds which recently merged with Benham Capital Management Funds which specialized in several kinds of Government Bond funds designed for safer money management. www.americancentury.com
-- Howard Parks (HowardP301@aol.com), April 24, 1998.