Traditionally when a person is invested in the stock market or any type of securities product they also have a “cash equivalent” account. This is called a money market account. If I owned Caterpillar stock but wanted to sell it and buy General Electric, I would sell the Caterpillar stock, the money would go to my money market account, then I would buy the General Electric stock from my money market account funds.
We began warning last year about the Securities Exchange Commission’s (SEC) new regulation that was published July 2014 concerning money market accounts. If you have a money market account, carefully read the following. The new SEC rule states, “The amendments make structural and operational reforms to address risks to investor runs in money market funds.”
It goes on to say, “The new rules require a floating net asset value for institutional prime money market funds, which allows the daily share prices of these funds to fluctuate along with changes in the market-based value of fund assets and provide non-government money market fund boards new tools – liquidity fees and redemption gates – to address runs.”
It gets better. “Today’s reforms fundamentally change the way that money market funds operate. They will reduce the risk of runs in money market funds and provide important new tools that will help further protect investors and the financial system,” said SEC Chair Mary Jo White. “Together, this strong reform package will make our markets more resilient and enhance transparency and fairness of these products for America’s investors.”
What does this mean? Typically, when investors fear the stock market will decline or go down, they will sell their stocks and mutual funds and hold their money in their money market account. The new SEC rule states that the money market accounts will now have a floating asset value, meaning one day it’s worth X and the next it’s worth Y. This is, as the statement states, fundamentally different than in the past. If the value fluctuates you can lose it all, right?
Brokerage companies or financial companies that investors or 401k plan administrators use to buy and sell stocks and mutual funds have been sending notices to their clients stating that their money market accounts are being closed and their money will be transferred to a “U.S. government money market fund.”
What kind of “investments” does the government sell? BONDS. So when an investor has money in a money market account, it is now going to be deposited into a government bond account whether you wanted it to be or not.
Where we have been wrong is that we predicted the government would just come out and say “We need your 401k or IRA,” and mandate that they are being converted to government bonds. Instead, the subtlety of this move will allow investors a period of time to get used to having their money invested in government junk bonds. Patience is a virtue that most people do not have. Plots to “fundamentally change America” take time to orchestrate, and the SEC has demonstrated that the government has a retirement plan for us.
What does this mean to you? When you go to cash out of your 401k or IRA and want to convert it to a fixed annuity, a known financial safe haven, you may encounter the redemption gates Mary Jo White has orchestrated for us. When you get ready to cash out your stocks or mutual funds, there could be “redemption gates” placed on your account that will prohibit you from transferring out. We won’t be able to help you if this is the case.
Our ability to decide what is best for us is being diminished. The scope of the restraints on our personal decision-making reaches further than most people want to realize. When a country is $19.5 trillion in debt it becomes desperate. The pig may have lipstick on now, but we’ll see how bad it smells… Eventually.
Read the SEC document for yourself: https://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542347679
Would you like to protect your money? If so call our office at 704.717.4848 to discuss your options.