Is your cash at risk in money market funds?

March 21, 2008

I've always assumed that the $20,000 I have in a money market mutual fund can't drop in value, but lately I've heard talk that some funds are exposed to the subprime lending mess. Should I worry?

I've always assumed that the $20,000 I have in a money market mutual fund can't drop in value, but lately I've heard talk that some funds are exposed to the subprime lending mess. Should I worry?

No. By law, money market funds must maintain a weighted average portfolio maturity of 90 days or less. Because of that they typically invest in very short-term securities such as Treasury bills, negotiable certificates of deposit, and very short-term loans. So even if your fund does dabble in loans of poor credit quality, it's apt to do so with only a small percentage of assets and for a short time. Better still, when risky assets do falter, money market funds almost universally absorb the losses rather than risk driving hordes of investors away by allowing them to lose money.