The U.S. Treasury no longer insures money market funds. Should you worry? MoneyWatch's Eric Schurenberg offers some red flags to watch for.
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>> Think back to the beginning of the financial panic in September of '08. Great institutions were crumbling. Unquestioned truths turned out to be false. Supposedly safe investments turned out the be riskier than anyone knew. And one of these unsafe, safe investments was money market funds whose investors were so shaken when 1 fund lost money that the treasury last fall had to step in and insure them just like the FDIC insures bank accounts. That and the end of the credit crunch restored faith in money funds so much that when the treasury's program expired after a year barely anyone blinked, but maybe they should have. Now this is not to say money market funds are unsafe, they're not, but if the crash taught us anything is that there's no such thing as absolute safety, not even in money funds. Here are a couple of red flags you should watch out for in your funds. Number 1: A sharp rise in yield. A money market fund is no place to reach for a few extra fractions of a percentage point. You should be skeptical if your funds suddenly starts to make much more than the average fund of its type. This is a sign your manager is straining for yield by taking more risk, that's not what a money fund is for. Red flag number 2: A rise in the fund's assets. If hot money is pouring into your fund you can be sure it will pour out as soon as it finds a higher yield. The problem with this is that buy and hold investors like you are then stuck footing the bill for all those transaction costs. So keep an eye on your money funds yield and monthly asset totals which you can track on iMoneynet.com.
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>> If either suddenly rises with no logical explanation it may mean that the fund that's supposed to keep your money safe isn't as safe as you think.
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