Here is something any safety-minded 401(k) investor ought to be thinking about right now...Back in 2008 when the U.S. financial crisis was boiling hot there was a period when a few money market funds "broke the buck," meaning these funds traded at less than $1 per share. This could happen again over months ahead, and on a wider, more damaging scale.
What can you do, then, to better ensure the safety of your retirement savings (assuming you have switched out of stock investments and moved the proceeds into a money market fund)?
This is a tough question. There are several possible scenarios of varying seriousness threatening what normally are thought safe investments: money market funds. Still there's good reason you might consider assuming the worst and planning for this as best you can.
What is the worst? Well, let's just say money market fund losses could far exceed the 3% losses some funds experienced in 2008. Indeed, some money market funds could completely evaporate.
Listen, I am not about to engage anyone who would polyannishly claim the odds of a profound crisis hitting money market funds is slim to none. Risk is extraordinarily elevated — like never before! — and that is where I will leave this discussion.
Still, the question remains: what can you do? The answer is whatever you can to get your 401(k) savings into short-term U.S. Treasury securities.
Does your 401(k) plan offer a money market option exclusively investing in U.S. Treasury securities? If so, your worries are over. If not, what's your next move?
The path of least resistance might be to send the following letter to your company's Human Resources department:
Dear [name],
I am saving for retirement in the company's 401(k) plan and I am extremely concerned about the safety of my savings. Since I desire a comfortable retirement, the safety of my savings is very important to me.
That is why I am writing to demand you contact our 401(k) plan administrator and insist our 401(k) offer an investment option allowing employees to shelter their retirement savings in a fund strictly investing in short-term U.S. Treasury securities, and nothing else.
If our 401(k) plan administrator, as is likely, defends the safety of money market investment options presently available in our 401(k) plan, kindly inform this person that Wall Street's credibility being very near zero these days begs extreme caution. When it comes to money market investments there is nothing safer than short-term U.S. Treasury securities.
Please let our 401(k) plan administrator know in no uncertain terms, there are times when protection of principal (my savings and the money it has earned!) is a foremost priority. This is one such moment. Proof is seen by how badly financial regulatory agencies have been behind the curve over recent years. Like Wall Street, they have become untrustworthy.
As I said at the start: the safety of my retirement savings is extraordinarily important to me, particularly right now. I am begging your help.
Sincerely,
[your name]
If you can do better, knock yourself out. Be sure to cc: your 401(k) plan's administrator (i.e. the investment firm). Likewise, enlist your co-workers to join in the effort.
The path of least resistance presented here simply is intended to help you protect your principal in such a way as won't cost you a dime.
Bottom line... In troubled times ahead the price for believing your retirement savings are safe in your 401(k) plan's money market fund might prove astronomical if that fund is investing in anything other than the safest securities of all: short-term U.S. Treasuries.
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