Breaking the Buck

This week on my way to work, I was driving and checking my Blackberry, probably not the safest thing to do....and there it was- an email from corporate that the Reserve fund had dropped its NAV price from $1.00 to .97cents. My heart stopped...for a sec...until I realized it was the Reserve Primary fund, not the Reserve US Govt. fund that I have my clients in....luckily I did not have one of my client's accounts in this fund. However, we've heard all these headlines over the past months...first, Bear Sterns, Fannie and Freddie, Lehman and then AIG, one of the nation's largest insurers....it is one thing to hear about these companies, but then to see the Reserve fund, the oldest, most prestigous money market manager out there, declaring that they have broken the buck....which means that the NAV( share price) which is always held at $1.00 was dropped to 97...a 3% loss in an account that is considered very safe. Why? Well money markets invest in a number of types of investments to give you the 3-5% yield they average...things like bankers acceptances notes and commercial paper...well they had about 780+ million in Lehman brothers paper. Ouch.
But don't fret too much, remember I'm talking about money market mutual funds....your money markets, checking, savings and CD's are FDIC insured...check out my blog a while back on FDIC insurance.
If you do have money in a money market mutual fund, don't panic...breaking the buck has only happened once before and no other companies besides the Reserve fund has announced any bad news. If it totally freaks you out, move it to a money market at your bank instead of your brokerage firm, but I think this might cause panic and start even more problems if everyone starts doing this...