Saw this in USA TODAY ...

Happy 2000. Got cash? Doomsday forecasts change investment choices for some

"Fearing a Y2K-triggered market meltdown, many investors say they're planning to move money out of the stock market in the coming months. Some are moving it into bonds and money market accounts others are stashing it in coffee cans and sock drawers. A USA TODAY/Gallup Poll earlier this year found that 55% of those surveyed believe it's likely banking and accounting systems will fail because of Y2K-related problems." http://www.usatoday.com/money/bcovwed.htm

QUESTION: If you're out of stocks, BUT have your cash position in a brokerage firm's money market account ... could you lose a part of your principal? Brokerage firms re-invest this money. What if they make the wrong call?

Thanks

-- Cheryl (Transplant@Oregon.com), May 26, 1999

Answers

Whoops - forgot the link: http://www.usatoday.com/money/bcovwed.htm

-- Cheryl (Transplant@Oregon.com), May 26, 1999.

The biggest danger is that they could lose track of the money, just like some banks might. I believe your money is insured to some extent, but if this happens on a massive scale, there's not enough insurance to cover everyone.

-- Doug (douglasjohnson@prodigy.net), May 26, 1999.

You always have to look not at the name on the paper but what backs it up. The various insurance schemes only have enough set aside reserves for a minor glitch in the economy, we are talking of nickel and dime reserves for every $100.oo of covered assests. If you have stock in company A and you think its Y2K propects are dim, it doesn't make much sense to sell their stock and buy their bonds. Money market is just pooling short term obligations. If those obligations go south, so does the money market pool. P.S. The fun part of money market or stock funds is that they have no legal obligation to give you your money back, they can elect to give you an asset whose value is proportional to your investment. So during a stock panic if you want to bail out of your mutual stock fund, they can just say "here's 157 shares of Coke Inc. this is your prorational share of the Bluesky Stock Fund. Good luck selling it."

-- Ken Seger (kenseger@earthlink.net), May 26, 1999.

Cheryl,

Money market funds are not fully insured (FDIC) or absolutely safe. They have done OK in the past, but since they are invested in short term loans to business or governments (usually) they are dependent on that party paying it back on time. When the Orange County, CA debacle hit a couple years ago there were some defaults in paying back the money market funds, but these were absorbed by the fund itself so as not to frighten investers about the safety. When you hear that no money market fund has ever cost the investor, that is basically true, but it has cost the fund company in some cases. They just quietly cover the loss to protect the image of safety. If enough business goes down, the money market funds will suffer losses, bet on it.

-- Gordon (gpconnolly@aol.com), May 26, 1999.

One upside of brokerage firms is that since they have a hug amount of retirement money, they are less likely to suffer from people trying to withdraw it. Most people will not tug IRA money out and take a terrible hit. Also, one has to hope that they will be looking to increase liquidity to protect themselves. Bottom line is that they may lose my money for a while but they look like good candidates to be standing after the fat lady sings (INHO). I would, however, not have my money in one of the new fangled ones that sprang up due to online trading. Go with one of the big ones. (IMHO again)

-- Dave Collum (aaa@aaa.com), May 26, 1999.

"Consumer Confidence and the Flight to Quality"

http://www.y2ktimebomb.com/II/TK/tk9912.htm

http://www.y2ktimebomb.com/II/TK/tk9913.htm

There's a good discussion of relative risk at these links.

-- Kevin (mixesmusic@worldnet.att.net), May 26, 1999.

The only money I've got is an IRA with one of the biggie mutual funds. I've been wondering if this is the safest way to go or is there anything better. Would a Certificate of Depost- FDIC insured be any better? anyone know?

-- anita (hillsidefarm@drbs.com), May 26, 1999.

umm- the IRA is in a money market fund though- meant to say that.

-- anita (hillsidefarm@drbs.com), May 26, 1999.

Anita,

As you know, an IRA can be moved without penalty. Go to a local bank and find out what they have available to hold an IRA in an FDIC insured account. That way, it will be protected by the highest level of insurance. You may not (probably won't) get as good a return on the money in a bank sponsored IRA, but your point here is preservation and protection. Don't delay looking into this because it takes time to do the transfer paper work if you decide to move the funds.

-- Gordon (gpconnolly@aol.com), May 26, 1999.

I'm going to change my assets to short term T Bills, backed by the full faith and credit of the US govmint yadda yadda. Short of a full scale collapse ( in which case paper money is poor quality toilet paper) those should be safe.

-- kozak (kozak@formerusaf.guv), May 26, 1999.

No.

-- A (A@AisA.com), May 27, 1999.