Government Money Market Funds
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Chris Said:
Money Market Account - Vanguard?We Answered:
I have had a Vanguard Prime Money Market Account for years now, and I love it. I did a lot of research before choosing that place for my emergency funds, and I have never regretted it. PS-actually as of last month they're paying 5.22%.It's true that money market funds are not FDIC insured because they are not cash--technically you're investing in treasury notes and overnight paper. Basically you are investing in ultra short term (overnight) bonds backed by the US government. Which is as safe as it gets. They simply put that as a disclaimer so people don't confuse their investment with cash at a bank.
But the only way you'll lose money in a money market is if the government defaults on its debt--ie refuses to pay back all the government bonds and notes outstanding. This will never happen. If it does, then we'll be in a total economic global meltdown, and you can be sure you'll have more problems than losing that $15,000 (plus money could become worthless like when Russia defaulted on their debt and people burned currency to stay warm and a loaf of bread cost barrels full of money).
In short, don't worry about your money market. It is pretty much the safest place you can put your money. I wouldn't trust the FDIC to pay you back in a global economic meltdown anyway.
Ramona Said:
How safe is my money market fund really?We Answered:
Your risk is only if the fund closes totally and divests all its investments then you would get ~95% of your investment. Just because there is a run on a fund does not mean your money is effected. Your fund is still contractually obligated to pay you what ever was originally agreed upon and they will honor that even if they lose money as a company to do so.If you have a truly large amount of cash in money markets I would break it up and put it into more than one bank. This is more for an access standpoint then risk of losing it. Some funds are restricting withdrawals or if one fails it takes a while for them to divest and release the investments.
Kathleen Said:
How much (percent) of my income should I invest in my 401K? I just graduated college and I'm sadly ignorant.We Answered:
First, congratulations on starting to save for your retirement. The benefits will be amazing.The trick is time. The longer you contribute, the more dramatically your balance will increase. Contribution-wise, I believe your contributions are limited to no more than 16% of your gross income. Obviously, contribute as much as you can without it cutting into your debt and living expenses. One great thing about 401K contributions is that they are deducted pre-tax. That means you don't pay taxes on whatever you contribute until you withdraw it. You'll find your net pay won't go down by the same amount as your contribution. If you're in a higher tax bracket (like single), it'll have an even smaller effect. It's almost like contributing for free!
As for investing, I think the trick is to pick a balance of funds based on your investement goals. As a young person, you're much more interested in growth--increasing the value of your balance--than you are income--low-return but safe investments like bonds. So a good strategy is to put a larger percentage of your contributions into funds that are growth-oriented, like the Growth Funds you've listed. These have a higher risk short-term, but since you're investing long-term they tend to give you better returns overall. Plus remember this sage investment advice: no risk, no reward. The more you're willing to stick out your neck, the more you'll get back.
I'd consider a strategy using 60-80% of contributions in growth funds, with a small percentage of that in a higher-risk fund, and 20-40% in income or money funds. Just remember that you can change the percentages of future contributions pretty much at will depending on the kind of plan your employer has.
You should also check to see if the plan provider (Merrill Lynch, etc.) has some pre-configured investment models. You can then rely more on their professional direction to help you better plan.
Good luck--first one to a million wins!
Albert Said:
Open-market operation to purchase government bonds?We Answered:
bMary Said:
Does anyone know the % rate paid in the WESTERN ASSET GOVERNMENT Money market fund, class A?We Answered:
You can find it athttp://www.leggmason.com/individualinves…