Money Market Funds... SIPC insurance is NOT the same as FDIC insurance... you are not covered for a loss

SIPC - What SIPC Protects

"SIPC protection is limited. SIPC only protects the custody function of the broker dealer, which means that SIPC works to restore to customers their securities and cash that are in their accounts when the brokerage firm liquidation begins.

SIPC does not protect against the decline in value of your securities. SIPC does not protect individuals who are sold worthless stocks and other securities. SIPC does not protect against losses due to a broker’s bad investment advice, or for recommending inappropriate investments.

It is important to recognize that SIPC protection is not the same as protection for your cash at a Federal Deposit Insurance Corporation (FDIC) insured banking institution because SIPC does not protect the value of any security."

So if the $1.00 per share price of the Money Market Fund goes to $0.99, you’ve just taken a 1% loss, and SIPC does not owe you anything.

If the Money Market Fund is full of rotting, reeking {fill in the blank} and it goes to $0.00 per share, and you take a 100% total loss, SIPC does not owe you anything.

But wait… the quote above mentions “cash”, isn’t a Money Market Fund the same thing as cash? No it is not… a Money Market Fund is considered an investment. True cash would be the default cash sweep at Schwab, or FCASH at Fidelity. Fidelity Cash Management and Fidelity HSAs use truly FDIC insured cash options, however, by sending your money to several “program banks”.

Caveat Emptor! FDIC and SIPC insurances are not the same.

T-Bills are safe, but I think they’re maybe less safe or unsafe from May - Sept 2023… that is what the Congressional Budget Office has identified as a risky period because of the deadlock in our Federal Government.

To be on the safe side, all of my US Treasuries mature either this month or beginning late December 2023. I want to skip most of 2023. I don’t want to be faced with, “Oh, we can’t give you your money back yet! Congress hasn’t raised the debt ceiling!”

Any Money Market Fund or T-Bill oriented fund like BIL or SGOV will be rolling into that risk period just about now. Because Bills are maturing, and they have to buy new ones. That’s precisely what I wanted to avoid, so I went out to late December when I bought recently. Hey, and they pay 5% so I’m not complaining.

It’s just awful that private citizens have to deal with this level of complexity. It’s like to manage the traps and potholes the government has created everyone needs an MBA and needs to have hedge fund manager skills. That’s disgusting to me. How can the common person thrive in this type of minefield?

The worst case is no deal in the Congress, and investors massively sell off Treasuries. Interest rates will spike really high, and just like the UK crisis that brought down Prime Minister Head-of-Lettuce (Liz Something?) pension firms, banks, will get pushed closer to insolvency. Why?

As rates go up, bond values go down (it’s a see-saw), so then banks and insurers instantly become less well capitalized because bonds are marked-to-market continuously. And that’s before the US debt gets downgraded by S&P or Moody’s. That would be worse.

To take it closer to home, firms might be unable to borrow short-term funds to meet payroll. Stuff like that, in a worst case scenario. Then you’re looking at bank runs, followed by bank “holidays” (shut-downs) and bail-ins. And Money Market Funds “breaking the buck”. I’m not predicting… but it has to be out there as a worse-case. It would be Great Depression 2.0. Janet Yellen has suggested exactly this.

Forget about the stock market in that case. Back to the 2000 and 2007 highs… S&P 500 back to the 1600 level, where those old highs would become durable support. S&P 500 losing 2/3 of it’s value from the peak in 2022. That’s really possible without a debt deal. At 1600 I’m buying stocks like mad.