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
American International Group, one of the largest insurance companies in the world, has been struggling to stay afloat this week. Moody’s Investors Service and Standard & Poor’s lowered their ratings on AIG; these downgrades, in turn, trigger clauses in AIG’s contracts with its trading partners that could require the company to raise billions for collateral or penalty payments. It looks as though the federal government has decided to keep AIG from going under. Still, today insurance policyholders may have been wondering: what happens to my insurance policy if the insurer goes bankrupt?
The financial health of an insurer …Read More
Most financial planners advise their clients to have money set aside in an emergency fund. Occasionally my clients ask me why they need to keep money on hand for emergencies. If you’re like most Americans, once you’ve paid your credit card bills, mortgage, and your other bills, there’s not much left of your paycheck. If you’re someone who lives far below his or her means (by this, I mean that you have two or three thousand dollars a month or more left unspent from your income every month) you have the capacity to cover many typical unexpected expenses, like the
A profound shift in retirement trends has been underway in America in the last couple of generations. The landscape has shifted from retirements funded largely through pensions and Social Security to retirement years that will be heavily dependent on individual savings, with relatively less help from Social Security. Meanwhile, the leading edge of the Baby Boom has begun retiring. The financial industry, eager to cash in on a perceived demographic windfall, is busy creating new investment products that claim to meet every retirement need. Retirement savers have lots of options, but without a good understanding of personal finance, they’re likely
Most people understand that the FDIC insures certain kinds of bank deposits, like bank CDs. There’s no way to “guarantee” an investment against losses, but an FDIC-insured deposit is probably the closest most of us will ever come to a guaranteed investment. However, consumers are sometimes a bit confused about how much FDIC insurance coverage they can have.
The current FDIC insurance limit is $100,000, so it’s not so common that a household would need to worry about having enough coverage. But sometimes people have unusual liquidity needs, or lots of money, or they’re just very conservative and want to …Read More