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Doogie reminded me of something - Public Service Announcement
creepycoug
Member Posts: 23,611
Back in 08, I had cash sitting in the Reserve's Yield Plus Fund. It was marketed as a money market fund, which as anyone qualified to be in the club knows is backed by the FDIC like a deposit account. Many of the Reserves funds were actual money market accounts and thus insured. Some were not, but you would have had to read the fine print in the prospectus to know that because the kid right out of Foster selling you this investment as a parking vehicle sure as hell wasn't going to tell you (assuming he even knew). I know, I know, I'm a securities lawyer. Cry me a river, etc.
But fuck, the thing is, it wasn't a money market fund. It was a fund fund, and by depositing my money I had the legal equivalent of preferred shares, still managed to a NAV of $1 per share (just like a MM fund), but preferred shares nonetheless.
Of course, if you thought you were getting preferred shares with no insurance, you'd want a better margin over prevailing MM returns. And with the Yield Plus Fund, I got a return premium, but I can tell you it wasn't meaningful relative to the incremental risk of not having the FDIC behind it.
So if you intend to park your cash in a MM fund and think it's liquid, make sure you understand whether it's a true MM fund, or a fund dressed up to look like one, but in fact is not. Because if we have another shit show and the fund breaks the buck (which happened to the Reserve because Lehman defaulted on their short-term notes, which the fund was invested in heavily), you can't go cry to the FDIC. They don't insure you.
The question to ask is simple: Is this a real MM fund insured by the FDIC or is it something else? Get that in writing or an e-mail. When the shit blew up, my money was tied up for close to 2 years, and I got no return for that time and given where they settled out below $1 NAV, I took a few thousand dollar haircut. TD and other brokerages were in it up to their necks with their marketing strategies, and gave me like $2,000 for my trouble without me even asking. It just showed up in my account.
It could have been worse. I could have lost much more of it than I did. My ass was exposed; I'll tell you that.
Caveat Emptor.
But fuck, the thing is, it wasn't a money market fund. It was a fund fund, and by depositing my money I had the legal equivalent of preferred shares, still managed to a NAV of $1 per share (just like a MM fund), but preferred shares nonetheless.
Of course, if you thought you were getting preferred shares with no insurance, you'd want a better margin over prevailing MM returns. And with the Yield Plus Fund, I got a return premium, but I can tell you it wasn't meaningful relative to the incremental risk of not having the FDIC behind it.
So if you intend to park your cash in a MM fund and think it's liquid, make sure you understand whether it's a true MM fund, or a fund dressed up to look like one, but in fact is not. Because if we have another shit show and the fund breaks the buck (which happened to the Reserve because Lehman defaulted on their short-term notes, which the fund was invested in heavily), you can't go cry to the FDIC. They don't insure you.
The question to ask is simple: Is this a real MM fund insured by the FDIC or is it something else? Get that in writing or an e-mail. When the shit blew up, my money was tied up for close to 2 years, and I got no return for that time and given where they settled out below $1 NAV, I took a few thousand dollar haircut. TD and other brokerages were in it up to their necks with their marketing strategies, and gave me like $2,000 for my trouble without me even asking. It just showed up in my account.
It could have been worse. I could have lost much more of it than I did. My ass was exposed; I'll tell you that.
Caveat Emptor.
Comments
I don't even remember how I wound up using AMEX for HYS. Loyalty I guess since I like their Credit service. The only thing that pisses me off about their HYS is that Turbo Tax (yes I waste money on Turbo Tax) can't seem to find them as a registered bank when I go to file.