Emergency FUnd / Money Market Fund Questions

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blood_donor
Posts: 119
Joined: Sun May 27, 2007 9:36 pm
Location: Metro Detroit, MI

Emergency FUnd / Money Market Fund Questions

Post by blood_donor » Sat Sep 27, 2008 10:51 pm

The credit market meltdown has really grabbed my attention (I was a "set it and forget it guy up until now).

My cash "emergency fund" savings are split into 2 buckets:

~$10,000 in my FDIC insured bank Money Market Checking account for quick access;

$50,000 at Fidelity, sitting in FDRXX (Fidelity Cash Reserve money market mutual fund).

This $60,000 represents about 9 months income for me.

Now, I *thought* FDRXX was very safe, but with all the stuff going on... is it foolish for me to keep my cash cushion there? FDRXX has all kinds of scary looking short term commercial paper, including Lehman Bros, Bear Stearns, etc. according to their last quarterly report.

Should *all* of my emergency cash be sitting in my FDIC insured banka ccount?

Am I worrying too much?

Valuethinker
Posts: 39065
Joined: Fri May 11, 2007 11:07 am

Re: Emergency FUnd / Money Market Fund Questions

Post by Valuethinker » Sun Sep 28, 2008 1:31 am

blood_donor wrote:The credit market meltdown has really grabbed my attention (I was a "set it and forget it guy up until now).

My cash "emergency fund" savings are split into 2 buckets:

~$10,000 in my FDIC insured bank Money Market Checking account for quick access;

$50,000 at Fidelity, sitting in FDRXX (Fidelity Cash Reserve money market mutual fund).

This $60,000 represents about 9 months income for me.

Now, I *thought* FDRXX was very safe, but with all the stuff going on... is it foolish for me to keep my cash cushion there? FDRXX has all kinds of scary looking short term commercial paper, including Lehman Bros, Bear Stearns, etc. according to their last quarterly report.

Should *all* of my emergency cash be sitting in my FDIC insured banka ccount?

Am I worrying too much?
OK the 'scary looking paper' is gone, bust. So you've had the hit. However there may be other risky paper in that fund.

You should be safe, given that the US government is now guaranteeing that (some) money market funds won't 'break the buck'.

For prudence, you could some or all of your money to an FDIC insured bank account, or CD.

Ziggy75
Posts: 307
Joined: Wed Sep 24, 2008 7:24 am

Post by Ziggy75 » Mon Sep 29, 2008 1:15 pm

Assuming your long term investments are with Fidelity; I would just stay put. I say that because it will make it convenient to purchase investment funds out of your MMF.

bk333
Posts: 49
Joined: Sat Aug 18, 2007 5:41 pm
Location: NY

Post by bk333 » Mon Sep 29, 2008 3:55 pm

I'm interested in this question as well. With over $100k in Vanguard's NY State tax-deferred MMF, would that money be safer elsewhere? What if there's a run on VG's MMF's?

Topic Author
blood_donor
Posts: 119
Joined: Sun May 27, 2007 9:36 pm
Location: Metro Detroit, MI

Post by blood_donor » Mon Sep 29, 2008 4:14 pm

Seems like you would want to move some of the money into another account so that the MM was insured by Treasury and then the remainder FDIC?
bk333 wrote:I'm interested in this question as well. With over $100k in Vanguard's NY State tax-deferred MMF, would that money be safer elsewhere? What if there's a run on VG's MMF's?

bk333
Posts: 49
Joined: Sat Aug 18, 2007 5:41 pm
Location: NY

Post by bk333 » Mon Sep 29, 2008 4:17 pm

I hear different things from different people. Some say that FDIC means nothing if there's a run on banks, as they only really have enough to insure a very small percentage of actual bank holdings.

Just wondering if anyone has opinions on the safest place for cash that we'll need to access (not CD's) in the next few months/year.

bookshot
Posts: 392
Joined: Mon Sep 01, 2008 9:25 pm

Post by bookshot » Mon Sep 29, 2008 4:25 pm

Don't panic. Insured CDs and bank MMs are as safe as anything can be. The FDIC has access to the US Treasury if it runs out of money. Only Congress could stop them. What are the odds of that in an election year? The only problem could be inconvenience of having to wait for your money and interest.
The "safest" place is Tbills. They are paying about 0%. You are paying them to just watch your money. Not a good idea IMO. Even Treasury MM funds could conceivably have liquidity problems, on top of little interest, but that is the next "safest". Bank CDs are a very close third.

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