September 19, 2008
Posted: 01:58 PM ET
If you’ve been listening to the news today you may be in a panic about your money market fund. Americans rely on bank-sold money market accounts and money market mutual funds as a safe and reliable piggy bank. Altogether they hold $3.5 trillion in hard-earned savings. Worries reached a crescendo this week after two funds “broke the buck.” That's industry jargon meaning the funds did the unthinkable and returned less than a dollar for each dollar invested.
1) Don't panic
Your savings are safe because the federal government will stand behind these investments up to $50 billion for the next year. In other words, you don't have to worry about losing money in your money market account. Financial advisors tell me that they are reassured by the move - and that it should quell fears about these investments. They say - stay put - stop worrying.
2) Look at the bigger picture
The good news is that the government is stepping in almost every day with lines of credit, emergency funding and backstops for companies and investors. This is good news - the government isn't going to let your nest egg dwindle. Back to mutual funds for a second. If you can't settle your stomach, call your advisor or the fund company or consult the prospectus to find out EXACTLY what your money market fund is invested in. Treasurys are the safest, if your money market fund is invested in corporate loans, you can change your fund.
3) Focus on your 401(k)
Instead of tinkering with your money market, realize you'd be better off making sure your 401k is well diversified. Financial advisors - and I've talked to some of the smartest ones in the country over the past couple of days - they say don't stop contributing to your savings - you don't know when the market will turn around - in fact look at the performance over the past two days – the Dow closed up about 370 points Friday and even more today. Here’s what I’m doing right now: I am continuing to put money to work in my 401k, just like I always do. Buying when stocks are down lowers my average cost of investment. Plus, I am looking for some good buys in the market, shopping for a mutual fund that can add to my wealth – in the long run.
For more of Gerri's Top Tips, watch CNN weekdays at 10:15 am Eastern Time.
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Clark Howard helps you become a wise consumer. We know you're busy, and that's why Clark's tips are quick and effective. He'll arm you with the information you need to make smart choices. During these tough economic times, Clark wants to help you save more, spend less and avoid getting ripped off!