When Credit Crisis hits, It may be too late to act

When the current credit crisis began to unfold, many financial commentators started warning about potential failures of money market funds, especially the more aggressive or high yield ones. The concern was that losses on these higher yielding instruments would force these money market funds to “break the buck” or redeem shares at less than the expected fixed rate of $1.00 per share.

The course of action recommended by these advisors was to switch to more conservative money market funds that invest in all U.S. Government obligations or U.S. Treasury instruments, even though it would mean receiving less income on your investment.

One of those “I’m more concerned with the return of my investment than the return on my investment” type suggestions.

So as a little experiment, I called Charles Schwab & Co. and asked about such a switch. The knowledgeable and persuasive registered representative I spoke with explained that their Cash Reserves Money Market Fund paid less than others because Schwab had always been more cautious and conservative, i.e., nothing to worry about.

But I pressed on. What if a person wanted a Government Fund?

Well, he replied, we do have a Government Money Market fund, but it is CLOSED TO NEW INVESTORS. He did not say for how long it had been closed. If you already had a Government Money Market account, you could add money. Probably not due to a shortage of Government (toilet) paper to invest in (LOL) but rather a desire to not have the yields on such “desirable” investments pushed even lower than was already happening because of the credit crisis.

Similarly, a company I am close with finally axed their 401(k) administrator and went direct with Vanguard. Vanguard has some fine funds to choose from, but only one Gold and Precious Metals fund. Guess what? CLOSED TO NEW INVESTORS. You can add money if you already have an account, but if you don’t you’re out of luck. Very LIMITED choices if you hope to prosper on the fall of the dollar and subsequent rise in commodities.

Don’t wait for a credit crisis or other problem to hit (or intensify) make your preparations before you need them.

Of course, this is the kind of advice that we have received for a long time in the Casey International Speculator.