Budgeting Archives | Page 59 of 60

Lehman CDS Auction Should Reveal Winners and Losers

Oct 11 2008

Until now, it hasn’t been entirely clear how much damage will result from the Lehman bankruptcy. An auction taking place today will be an important step in assessing which financial institutions stand to take a hit. Today’s auction involves a type of security that many people know little about or have only heard of recently: credit default swaps.

What are credit default swaps?

Generally, an “investment swap” involves trading one security for another. However, another kind of investment swap is a contract: one in which two parties agree to enter into transactions with each other on the basis of changes …

How Should You Invest Your Emergency Fund?

Oct 01 2008

Having discussed why having an emergency fund is a good idea and how big an emergency fund needs to be, I’d now like to talk about investments suitable for an emergency fund.

Generally speaking, some part of your emergency fund needs to be in a liquid, readily accessible investment whose value does not fluctuate much. An emergency fund invested entirely in your employer’s stock would therefore be a really, really poor choice. Typically, emergency funds are invested in savings accounts, CDs, money market accounts (taxable or tax-free), or Treasury bills/notes/bonds. Where bank deposits are used, they should be FDIC-insured. …

Making the Best of a Bad Situation

Sep 30 2008

Congress voted down the Troubled Assets Relief Program (“TARP”) legislation, much to the chagrin of the financial markets. At the moment, the markets continue to be in distress, despite a “dead cat bounce” in stocks today. What should you be doing in terms of your household finances?

If you’ve already established a diversified investment portfolio that fits your goals, your situation, and your tolerance for risk, sit tight. This is not the time for making big moves into or out of your investments. The stock market is likely to swing wildly for a while until there is confidence that the …

How Much Do You Need in Your Emergency Fund?

Sep 23 2008

In my first post on emergency funds, I discussed why having an emergency fund is a wise idea. The next question is, how big does an emergency fund need to be?

The question of how much should be set aside for emergencies is one of several that people tend to avoid. It can be avoided either by not saving anything, or by saving much more than is needed. I’ve seen clients do both, although the former is the more common error. Most people want to think about an emergency fund about as much as they want to think about …

How Can I Tell If My Money Market Fund Is Safe?

Sep 19 2008

This Monday, something very unusual happened: a money market fund began trading its shares at 97 cents, instead of a dollar. Reserve Primary Money Fund (RPFXX) was forced to write down three quarters of a billion dollars of Lehman Brothers debt as a consequence of the Lehman bankruptcy. Even though the debt may eventually be partially paid through the bankruptcy process, as a current obligation the debt has no value. Thus the fund’s share value had to drop, forcing the fund to “break the buck.” On Monday and Tuesday, investors in the fund pulled out $27 billion in response. FT

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