Why the Skepticism?
Considering their high quality, almost inevitable (yet negligible) profit yielding history, why then would they fail to meet at least the most minimal of profit expectations? As it stands, a profit (as minimal as what it may appear from the outset) is still a profit nonetheless. Investors, however, may see a large portion of this profit being offset with broker charges, administrative costs and basic fund maintenance expenses.
Given the benchmark of a $1 net asset value that all money market funds should ideally incorporate as part of their secure investment strategy, it’s rare where the Net Asset Value of a money market fund falls below this benchmark. “Breaking the buck" is a term given to companies who fail to achieve this benchmark. There are, however, phenomenally stringent Securities and Exchange Commission rules and regulations that govern the $1 a share standard. However, failure to meet this standard has happened twice since the inception of money market funds in1971. Once in 1994, the Net Asset Value of the Community Bankers US Government Fund broke the buck and ended paying its investors 96c per share. Secondly, after Lehman’s Brother’s Holdings filed for bankruptcy in 2008, the exponential effect it had on the Reserve Primary Fund caused that fund to break the buck bringing down its share value to ninety-seven cents per share.
The current rationale of most investors is to maximize their capital investment with a fairly promising return. Given the climate of investor critics with more of them being prudent and cautious as opposed to risk inclined, it’s always a thought that if the buck could be broken twice, surely it could happen again? With that being said, money markets provide the best form of liquidity to financial providers and intermediaries which means that they have and will continue to be sought after for many years to come.