UPDATE 11.10.23: It wasn’t a Black Swan, but it was perhaps indicative that something had changed. An auction for treasuries yesterday saw very little demand, scaring markets. Federal Reserve Chairman Jerome Powell put the icing on the cake with language indicating the Fed is “not confident” it won’t raise rates again. Stocks responded by dropping in value. If you are a speculator whose goal is to invest and then sell at a higher price in the future, you got a good example of why investing is math, not emotion. You want to have income you can rely on, and let prices do what they will. Adding up your dividend and interest payments is math. Hope that prices will rise is an emotion. Don’t wait until a real Black Swan hits to adjust accordingly.
Originally posted February 28, 2023.
A word of caution, dear investor, about money market funds: they’re not all created equal. In fact, when it comes to your lazy cash, you want to treat it with kid gloves. There’s a reason it’s on your couch. The world’s a dangerous place.
Yes, you want to get it into the big wide world to do something productive with its life. But you also don’t want it coming home one day saying: “I gambled, and I owe Mr. Big $20k. Can you help?”
Back when the financial crisis unfolded, Lehman Brothers failed, panic set in, and money markets “broke the buck” (trading below a net asset value of $1). But it was the leveraged stuff offering crazy rates that took it on the chin.
A lot has changed since then, but has it? It doesn’t take much to be sold by some broker looking to get your business promising “risk free” rates well above reality. Sure, they might work out in times like these, but what happens when the black swan swoops in for an easy meal?
Your Survival Guy cares about you. Risk is a four-letter word I avoid like the plague.
Action Line: When you’re ready to talk, let me know.
P.S. Safety First: I like the Fidelity Treasury Money Market (FZFXX) as a core money market.
Originally posted on Your Survival Guy.
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