Where is the "money" in your "money market" fund?
I participate in the 401(k) plan where I work. It's hard to turn down the "free" matching money from my employer, not to mention the tax-deferred savings aspect. However, I do have somewhat of a dilemma regarding the investment choices that the plan offers.
Of course, anyone who pays much attention to the analyses on this site could probably guess that I don't have my money in the stock market funds, which is a good thing because just about all of them have had dreadful results over the last several years (generally in the -20% per year annual "return" range). And equally of course, they don't have anything as "weird" as a precious metals fund.
So what are my choices? Well, I could put my money into their bond fund at 40 year lows in interest rates, and get killed if (when) interest rates go up. For some reason, that doesn't seem very appetizing either.
That pretty much leaves only one alternative: the "money market" fund. Now I imagine that most people would be satisfied with the description "money market," and never wonder exactly what such a fund actually invests in. But as anyone who has read my previous commentaries on this site could also guess, I'm one of those troublemaking types who wants to know exactly where his hard-earned money actually is being invested on his behalf. So I decided to try to find out what they do with it once I give it to them.
First, I gave a call to the fund administration company (a large mutual fund organization that shall remain nameless) and talked to one of their representatives. She was happy to read me the list of their top 10 investments. However, that exercise raised more questions than it answered. For example, why were three of the top 10 investments in foreign banks? Couldn't they find U.S. banks that would pay them (me) the same amount (in the range of a half percent a year)?
Get out your triparty hat
So I did a web search on the term "bulk triparty," and came up with a number of interesting links. First, from the web site of the mutual fund organization:
So "bulk triparty" was the right term, not a typo or a misunderstanding. But that still didn't tell me what it was exactly. Some additional searching on the Web yielded the link...
...which includes, among a lot of other very technical material, the following statement:
Well, that sounds very important, but it still didn't answer my question as to what these things are. Now I was getting annoyed. Here I had several thousand dollars invested in a money market fund, and I couldn't find out exactly what it is investing the money in.
I figured if I couldn't get an answer, maybe the benefits administrator of my company could. So I contacted her and asked her to find out exactly what "bulk triparty" was. This took about two weeks and several emails back and forth, and probably raised as many questions as it answered, but the basic idea was "they're very safe transactions involving government securities in some way, all the borrowers are very highly rated [like Enron was "up until four days before its bankruptcy filing."...
...and anyway the borrowers promise that they have plenty of collateral to back their loans [like Enron did]." How silly of me to worry!
Maybe I'm just dense, but I'm having a little difficulty understanding what the advantages of these "safe investments" are compared to something relatively simple like, oh, directly investing in treasury bills. Certainly, it's not the yield, which approaches zero in any event. Obviously, it isn't their simplicity and ease of understanding. Could it be that they allow the management company to charge a higher management fee?
Very secure, indeed
Now there's a company I want to lend money to! Oh, that's right, I already am lending them money, via my retirement account.
Moving right along, "Sheffield Receivables" doesn't seem to have any Web presence at all, other than as a listing in other money market fund holdings. "Jupiter Securities" and "Falcon Asset Secur.," on the other hand, aren't even that visible. I'm sure all of them are perfectly safe, though. Would the mutual fund invest in them if they weren't?
More comforting information
Doesn't that make you feel secure? Why, if I've said it once, I've said it 100 times, if you're worried about your investments, just buy some of that good old-fashioned "Asset-backed commercial paper" and you'll be able to sleep easily at night. Of course, some people prefer those "Yankee certificates of deposit," or maybe even "Euro certificates of deposit;" all I can say is that there's no accounting for taste. And as for "Interest-bearing commercial paper," why would you want any other kind?
To get back to reality here, I have requested that the benefits administrator at our company bring this issue up with the committee that decides what investments we are allowed to make in our 401(k) plans, and she said she would. So maybe in a few months I'll be able to put my money in a fund that invests in treasury bills (or even gold and silver, like Central Fund of Canada? Fat chance), not some mysterious, complex instruments that even the mutual fund company can't explain satisfactorily.
The moral of the story?