Thursday, September 18, 2008

Breaking the Buck ’08 (Not!)

Last November we moved all of our cash holdings to Schwab’s U.S. Treasury Money Market Fund in anticipation of conventional money market funds potentially “breaking the buck”, i.e. falling below $1 share value as the result of losses in asset backed commercial paper or the commercial paper of bankrupted companies.  Therefore, our clients’ funds have been protected from that unfortunate scenario for nearly a year now.  We have paid a price in terms of lower yields on cash that result from this level of security, but we have felt it was worth it.

We wrote a blog note in November 2007 describing our concerns and actions.  You can read that post: “Breaking the Buck (Not!)” by clicking on the 2007 on this link.  Breaking the Buck (Not!)

Here are a few words from that article: 

“We had been suspicious that this might happen for some time now, so we have moved all of our clients’ cash investments to U.S. Treasury money market funds (or the equivalent), thereby insuring that we will continue to receive some positive return on all of our cash investments.  Even though it is widely assumed that major brokerages would support the value of their funds, a large exodus from money funds could impair their ability to do so on a timely basis.  We feel it is important to be early in our decision if in fact this scenario develops.”

With all the attention being paid to money market funds in the press over the last few days, we thought it would be a good idea to remind everyone that their cash is invested in U.S. Treasury securities. 

Jack and Peter Falker 

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