snorkelwise wrote:Are these tax exempt money market funds still essentially safe?? That is, is there much of a chance that I would loose money in these funds, "Break The Buck." Should I be cautious about parking my money in these funds, or just stick to traditional bank savings accounts?
In my opinion, the "safe" money market funds from before are still "safe", depending on your definition.
First off, new rules have created restrictions which you may or may not be concerned about. In a crisis where there are massive outflows out of the funds, there may be either a 10-day restriction on when you get your money, or a penalty/charge on that money if you need it prior to 10-days. But if the underlying credit/quality of the issuers which make up the money market investments are do not default, you are not at risk of losing your principal. This aspect of MMF safety has not changed.
If there is a liquidity crisis, and almost everyone in one fund wants their money right away, that money may not be there. This has always been a risk of just about any investment or bank account. That risk hasn't changed. In fact, it has improved because of the penalties which may be imposed in such a situation. So a MMF is now potentially safer from that perspective.
For me, I consider funds such as Vanguards TE MMFs (tax-exept money market funds) to be safe, and have actually moved some of my money from online savings accounts to a TE MMF due to the superior yield in my situation. Note, savings account are FDIC insured. MM funds are NOT. You CAN lose money in an MMF if there are underlying defaults. I happen to feel the risk is very low, and personally consider Vanguard's MM funds and not-quite-but-just-about-almost the same as a savings account. I hope to never have an emergency where I absolutely need that cash before 10 days. On the other hand, the time I would maybe NEED that money within 10 days would likely happen during a restricted time. I.e. I would want to get my money out for the same reason everyone else wants their money out: fear of losing principal due to a credit crisis, or a coming zombie apocalypse (and I needed the money to buy guns, water, and gold).
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes".