Money Market Funds

When the Federal Reserve acts to stimulate the U.S. economy by initiating cuts in interest rates, as it did again recently, the impact on economic growth usually is not quickly evident.Prospective business and individual borrowers, who may want to build plants or homes, first must decide to borrow what they need.But lenders -- investors who make money available by buying U.S. Treasury securities, bank certificates of deposit and other corporate and government obligations -- can feel the impact fairly fast as their interest income declines.

Q: I have heard the term "breaking the buck" in regard to money market funds. I know Reserve Primary Fund did this due to Lehman Brothers debt securities. Is this a problem for all money-market funds? - K.H., via the Internet A: "Breaking the buck," or having per-share value fall below a dollar, is rare, and money-market funds are considered quite safe. But the episode with Reserve Primary Fund shook the confidence of many investors, who moved large amounts of cash from money-market funds into bank money-market accounts insured by the Federal Deposit Insurance Corp.

One person's flight to safety is another person's panic. But no matter what you call it, many investors are making an unnecessary trip in that direction with their money-market mutual funds. Market concerns are behind the flight to quality that has pushed assets in money-market funds to a record $2.72 trillion. But if you have been thinking that you might join in that journey and change your money-market fund to gain additional safety, think again; the journey isn't only unnecessary, but you're already too late.

OK, let's deal with the fear first.What if we were wrong? "We" being the financial media, the mutual fund companies, the stock brokerages, the financial planners, the retirement specialists. You know, the people who pushed you into investing more heavily in stocks than you may have been comfortable with, by saying that unless you did, you were going to have a long, financially challenged retirement.You responded, admirably. And by doing so, pushed the various stock markets and indexes up dramatically as you poured trillions, not billions, into mutual funds, mostly stock funds.

Fidelity names fund directorFidelity Investments, whose bond mutual funds were stung last year by rising interest rates and risky investments, named managing director Fred Henning yesterday as director of its fixed-income and money market funds.Mr. Henning's predecessor, Thomas Steffanci, resigned in January to become a principal with Alpha Select Investments Inc. in Portsmouth, N.H., after a year in which 18 of Fidelity's 20 taxable bond funds suffered losses.

Investment gurus are for the birds.That's because anyone who lays claim to holding the only true answers at all times is simply tossing around a lot of, well, birdseed.There are many ways to beat a troubled stock market, and a shrewd investor does best by listening to numerous voices before making decisions.Top-performing investment letters of the past 12 months excelled by employing unique strategies to bring subscribers in ahead of the pack. One overachiever temporarily tossed money into gold-oriented mutual funds, while another bought stock on margin.

LONDON -- After 15 years of building its fund business in the United Kingdom, Fidelity Investments is advancing on the European continent.The Boston-based mutual fund giant opened its second front in Europe this fall, complementing its 2-year-old German business with a French office on Paris' famed Champs Elysees."

NEW YORK -- What if it's really a bear market? True bears don't claw at stock prices for a couple of months and then slouch away. Every rally is a false one while the dominant downtrend plays itself out, says Richard Russell of La Jolla, Calif., editor of the Dow Theory Letters.For the past 20 years, Russell's technical analysis kept calling this market a bull trip (with the '87 crash just a one-day disaster). Two weeks ago, however, his data turned down -- forecasting a (( decline in stocks.

T. Rowe Price Associates Inc., which manages a family of 50 mutual funds, is adding six more to its brood.The Baltimore-based company yesterday began offering a new group of fixed-income funds for wealthier investors. The new Summit funds require a minimum initial investment of $25,000.In return for the high balance requirement, the no-load Summit funds will offer lower-than-average annual fees, according to a T. Rowe Price spokeswoman, Jane White. While the company's average bond fund charges annual fees of about 0.80 percent of assets under management, the Summit funds' fees will range from 0.45 percent to 0.60 percent, Ms. White said.

NEW YORK -- Stocks surged to new highs yesterday as investors large and small braved the market's risks in search of returns no longer available from bank accounts and bonds.The Dow Jones industrial average rose 64.84 points, or 1.9 percent, to a new high of 3,469.42, more than 28 points above its previous record close.It was the largest daily gain since September for the Dow, and several other indexes also set new highs. The Standard & Poor's index scored its best daily gain since the end of 1991.

T. Rowe Price Group's third-quarter profit dipped 13 percent as the Baltimore money manager's revenue from investment services fell. Still, the company reported Friday that clients continued to pour money into its mutual funds and other products, driving in $7.4 billion of new money during the quarter. Earnings beat Wall Street estimates of 46 cents per share based on a survey of 18 analysts by Bloomberg News. Shares rose $5.16 to close at $54.27 yesterday. Price Chief Executive and President James A.C. Kennedy said in an interview that the company is producing positive results for clients, noting that 87 percent of its funds outperformed their peers during a five-year period that ended Sept.

Legg Mason Inc. posted a profit for the second consecutive quarter Thursday, reflecting another sign of recovery for the Baltimore money manager as client redemptions slowed further and its assets under management grew. Net income in the fiscal second quarter ending Sept. 30 was $45.8 million, or 30 cents per diluted share, compared with a loss of $108.7 million, or 77 cents, in the corresponding period a year ago. At the time, Legg was struggling to contain hefty costs to support money market funds hurt by investments in soured mortgage-backed securities.

Q: I have heard the term "breaking the buck" in regard to money market funds. I know Reserve Primary Fund did this due to Lehman Brothers debt securities. Is this a problem for all money-market funds? - K.H., via the Internet A: "Breaking the buck," or having per-share value fall below a dollar, is rare, and money-market funds are considered quite safe. But the episode with Reserve Primary Fund shook the confidence of many investors, who moved large amounts of cash from money-market funds into bank money-market accounts insured by the Federal Deposit Insurance Corp.

By the time the Reserve Fund reported last Tuesday afternoon that its Primary Fund money market fund series had "broken the buck" - that is, was no longer worth a dollar a share - investors had pulled billions of dollars out of the fund. A lawsuit filed late last week by Ameriprise Financial claims the Reserve Fund tipped some big customers about its crisis in advance so they could get their cash out before its losses became public. According to the complaint, two senior Reserve Fund executives acknowledged during a conference call last Thursday with Ameriprise that big investors had received an early warning.

Regional brokerage Ferris, Baker, Watts has moved to redeem its clients' money from what were once considered ultra-safe investments in money market funds and warned the investors not to seek to withdraw money or make trades from their accounts. The notice on the company's Web site late Thursday comes a day after it warned clients who had money in the Reserve Fund's Primary Fund that their investments had lost value, an almost unprecedented occurrence for such a fund. A soured investment in Lehman Brothers Holdings Inc. had caused the Primary Fund, the largest of the Reserve's funds, and two others to "break the buck," meaning the fund no longer had assets of $1 for every dollar invested.

One person's flight to safety is another person's panic. But no matter what you call it, many investors are making an unnecessary trip in that direction with their money-market mutual funds. Market concerns are behind the flight to quality that has pushed assets in money-market funds to a record $2.72 trillion. But if you have been thinking that you might join in that journey and change your money-market fund to gain additional safety, think again; the journey isn't only unnecessary, but you're already too late.

What's wrong with cash? Not a thing. If you can't stomach the market's recent plunge, you could move a little money into a high-yielding savings account or money-market fund temporarily and earn close to 5 percent. In fact, some institutions are higher. EverBank of Jacksonville, Fla., offers high-interest checking accounts over the Internet with a 5.5 percent three-month teaser rate, then 3 percent to 4 percent later, depending on the amount kept in the account. Parking money at rates approaching the 5.9 percent historical average on long-term U.S. Treasury bonds certainly has appeal now. Virtually every type of investment, from gold to stocks and bonds, has been pummeled since early May. Gold futures are down about 20 percent, the Dow has lost more than 5 percent, and the average international fund has bled about 13 percent.

CONTINUED TERROR threats, a coming election, long-dormant inflation knocking on the door: It's enough to send even the steadiest investors running for cover. Trouble is, the old havens aren't what they used to be. Gold has already experienced a huge run-up. Utilities that once were the domain of widows and orphans have deregulated and many still are favoring growth rather than plowing cash into shareholder dividends. And in a rising-rate environment, loading up on bonds can spell disaster.

Nearly all investors should have some cash in their portfolios because you never know what's around the corner. Your house or car could require immediate repairs or you might lose your job, and that cash could come in handy. So, it's a good thing to have some money market funds or to own treasury bills directly. Of less value, though, is cash in a stock mutual fund. If a fund is 85 percent stock and 15 percent cash, it's still way too volatile to be used as a rainy-day fund. Not only that, you're going to earn a lousy return on that cash.

STEVE from Suquamish, Wash., is fed up with his mutual funds. They've lost too much money. He can't bear them any more. "I'm through with mutual funds," he wrote in a recent e-mail. "What are the alternatives? What should I replace my funds with?" Steve, who declined to give his last name, is far from alone in wanting to abandon funds, particularly stock mutual funds. Investors pulled more than $25 billion from stock funds during 2002. Money market funds, which have been posting wretched returns due to the historic decline in interest rates, also saw net outflows.