Here is a reminder on something we have written about several times. If one of the big banks, called ‘systemically important,’ your money above $250,000 in that bank account can be converted to stock in the bank if that banks is failing.
The legal justification is that you are an “unsecured creditor” to the bank. Obviously, those shares would be worth very little.
You see, they say that by putting your money into the bank account, you actually are a lender to the bank. How many people do you think know that?
Money market funds have a lot of money in bank CD’s. Will this be subject to forfeiture in order to save the bank? In 2008, money market funds saw severe outflows. Apparently 24% of money market fund assets were liquidated in just four weeks. The government actually had to temporarily guarantee the safety of new assets in MMFs to prevent a catastrophic collapse of that industry, taking banks with it.
To do: as a precaution, those who have lots of money bank CD’s or normal MMFs could consider removing that capital and placing it into a government-only investments. There are lots of mutual funds that invest only in US Treasuries. At least your money will be secure, although the yield is low.
If you select a MMFs that invest only in Treasuries, your income will be virtually zero, but it is secure. Think about that during calm times, not when there is a crisis.
We have been asking investors we meet for a dozen years if they know what assets they have in their 401k. So far, we have met 3 people out of hundreds who knew. It’s pathetic that people have so little interest in their own retirement savings. Ask yourself, how much time do you spend on looking at these investments, and possible alternatives that are allowed?
Instead of us giving you a long list of mutual funds or ETFs that invest in Treasuries-only, take some time and investigate yourself. The Vanguard family usually has the lowest fees for management. Investors should be active.