Basics of Investing

Archive for October, 2009

Question: Is my fidelity Money Market Mutual Fund safe?

This is what it invests in:
Primarily invests in U.S. dollar-denominated money market securities and repurchase agreements for those securities. The fund may also enter into reverse repurchase agreements. The fund also invests more than 25% of its assets in the financial services industry. An investment in this portfolio is not guaranteed or insured by the FDIC or any other government agency. Although this money market fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in this fund. Yield will vary.

I have my entire 401k in this account and I’m wondering if its safe in today’s market. I’d like to put it into a municipal bond fund that is tax free, but its not available in my 401k. Should I roll it over into an IRA and if so what are the pros and cons to rolling over?
Any suggestions would be greatly appreciated.

Answer: You’re fine in Fidelity’s money market fund. Here are some reasons:
1. They’ve been conservative with their holdings and have chosen to sacrifice yield (interest) for safety — a good sign of prudent management.
2. They don’t have any exposure to Lehman debt, and only miniscule exposure to other problem companies like Merrill Lynch and AIG.
3. Money market funds are Fidelity’s bread and butter, so they have a lot more to lose than you if they let one of their MM funds “break the buck.”
4. Fidelity also has the financial means to back up their MM funds should they run into any short-term problems.

The link below has some more detail on their taxable MM funds, much of which also applies to their MM funds for tax-deferred accounts, such as your 401k account.

Two more notes:
A. You don’t have a municipal bond fund in your 401k because 401k accounts are “tax-deferred” accounts and cannot take advantage of the tax benefits that muni bonds provide.

B. Sitting on cash is fine for now, but develop an investment plan and don’t sit on that cash forever. Inflation will eventually catch up with you and pass you by. Good luck!

Investing Tips : Fidelity Fixed Income Investments