ANSWERS: 1
  • <h4 class="dechead">On One Hand: Nothing is Truly Safe.

    Money market funds, like any other investment, are subject to risk, because the money is being lent out to both private and government corporate entities that always hold some risk of default, no matter how slim. For a fund's investors to lose any money at all would be very unusual, but it can happen. For example, in 2007, many money market funds in Canada were at risk of collapse because the commercial paper they were invested in included subprime mortgage-backed securities that were themselves about to collapse.

    On the Other: This is as Safe as it Gets.

    Because money market funds are, by their very nature, short-term investments, and because most funds are heavily invested in well-insured government debt, money market funds are about as safe an investment as you can get, slightly riskier than holding a savings account at a bank.

    Bottom Line

    The more government bills a fund holds, the less risky it is considered. So to be as safe as possible, look for a fund that invests exclusively in government of Canada treasury bills.

    Source:

    Atlantic Free Press: Tragedy in the Making in Washington and on Wall Street: The Canadian Solution

    "Getting Started with Mutual Funds"; Ranga Chand; 1998; Stoddart Publishing Co.

    Financial Post: 'Safe haven' loses lustre

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