This is what happens when debt bubbles burst. The problems start out with the low quality or riskiest debt first. Then it spreads to the higher quality debt.
Ultra-short bond funds also known as money market substitutes, are used by investors who want to attempt to make more interest than a money market or savings account. A little more risk is assumed through the use of these investments. However, they are generally considered to be pretty conservative.
Over the last four weeks, this has been the worst place to be. Apparently, many of these funds are have as part of their portfolios investments in sub-prime debt. How could that have happened? They placed client's money into investments that were rated high quality. How sub-prime debt could ever be rated high quality is beyond me.
One fund in particular is -6.26% over the last 4 weeks. This particular fund which has been opened since 1992 has never lost money.
Just when you think you are playing it safe, you find out otherwise. It is a real good idea to check out your money market account as well as your ultra-short bond funds to make sure that you are not taking unattended risk.
About Prudent Money
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- Bob Brooks is the host of Prudent Money. The show airs weekdays from 3:30 to 4:00 pm on 91.7 KVTT is heard in Dallas, Texas. For more information go to www.prudentmoney.com
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