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Why Money Market Funds Are a Senior's Best Bet During This Financial Crisis

In these dangerous and quixotic financial times, there are many pitfalls to seniors preserving their wealth; however money markets could provide shelter during the financial crisis. In spite of the fear that is prevalent among us all, many people have not gotten the message that we are looking at years of financial pain. In this environment, cash, safety and liquidity of your money are crucial. I am not a financial expert and am in no way giving advice. I would simply like to share my opinion as an amateur investor. And after reading many market experts' opinions and their approach to personal financial safety, I believe that protection of personal capital is, at this time, the key.

Money Market Accounts vs Commercial Bank Accounts

U.S. treasury fully insured money market funds, instead of commercial bank accounts, fit the bill for most of us in this regard. Why? They provide immediate liquidity via check writing and bank wiring privileges; their principal is backed by the full faith and credit of the U.S. government; they have low fees; they provide some income production (whether your money is in a business or personal account); they provide federally insured safety no matter how much money is in the account; they are not subject to bank holidays; and finally, they may provide freedom from state and local income taxes.

You should always check the bank credit ranking of your local bank and keep just enough there for what you need and what will be fully insured (<$250,000). This requires setting up wiring capability of funds from the bank account to the Treasury-insured money market account. There are some B+ and better-rated local banks, and they are probably quite safe during this financial crisis. But over a national bank holiday, your money may be tied up for a prolonged period, even if it is insured. And when push comes to shove, having your money in the treasury money market fund versus a regular bank account is very comforting for all the above reasons.

When choosing a Treasury-backed money market fund, it's wise to conduct a little research into the fees that are charged per check written. If you are opening a business bank account, for example, a busy business banking account may create excessive transaction fees. Some money market funds have low check-writing fees and few restrictions regarding where and when you transact business.

Setting Up a Money Market Fund

The most common way to register a personal account is as joint tenancy with rights of survivorship. If one person dies, the co-owner gets the balance. A trust account is set up and follows the directions of the trust document. Setting up a money market account in this way may require more than one signature to withdraw funds. IRA and retirement accounts follow the federal government's restrictions about withdrawal and taxation for retirement accounts.

Transferring Funds Between Your Money Market Fund & Bank Account

To transfer funds between your money market fund and your primary bank account, you can write a check or simply do a bank wire transfer between both your primary bank account to the Treasury money market fund. Wiring is easier than writing a check to transfer funds between a bank account and a treasury money market fund. Wire transfers usually process overnight. Most people deposit salary, small checks and other amounts into their local bank checking account initially, and then following that, wire a larger amount from their local bank to the treasury money market fund. If you need cash transactions, those should be done with your local bank.

Choosing Where to Put Your Money

For retirement and investment accounts in this financial crisis, and in making determinations about how liquid and safe you need to be, you must consider: the amount of volatility in the markets, the amount of risk in the markets, your age and the amount of funds you need to live on. In this catastrophic economic environment, one should usually opt for most of their funds to be in Treasury money market funds, with 25% or less in non-volatile mutual funds. These non-volatile funds will profit more than Treasury money market funds if the markets trend higher rather than lower, but provide some protection on the downside. 401K, IRA and 529 plans give you many choices, but frequently do not have specific Treasury money market funds.

It is best to find the safest place for your money, from the choices listed above, with the least in equities at this time, and the most in government-backed funds of short duration. When blood is running in the streets, that will be the time to climb back on the equity-stock bandwagon and choose the longer-duration bond funds. This has not happened yet, in my opinion. Remember that if interest rates begin to skyrocket, long-term bonds will collapse in price, and visa versa.

The Bottom Line: Play It Safe

It is clear that no one knows for sure when this market will bottom out. Some people feel we are near the bottom, but I believe that the market has a very long way to go before hitting rock bottom. Since there are always cycles in markets and since there are usually rallies, even in bear markets, I do not believe we have reached the real bottom. Therefore, I use rallies to sell stocks that need to be unloaded, and not to try and buy stocks at this point. I believe that we should be mostly in Treasury money market funds now, and not speculating in equities. I believe we are at the beginning of a multi-year bear market; thus, trying to guess at when a market bottom has been reached is quite fruitless at this early stage.

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Author’s Note: Source: The Weiss Safe Money Banking Survival Guide

Editor's Note: The information that appears in this article is based solely on the author's opinion and is not a substitute for professional financial advice. If you need professional financial advice, we recommend that you consult a qualified financial professional. Please click here to read Gilbert Guide's disclaimer on medical, legal and financial advice.

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Posted in: Handling the Economic Crisis

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