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January 17, 2008


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This was much more well-reasoned than Marotta's last post about the cash being "the riskiest investment since 2002", in which it was claimed that inflation over the last 5 years was about 50% (if I recall correctly). I won't post a link because FMF discouraged that and I want to respect his wishes. But if Marotta really thinks that cash is really "the riskiest investment", then this article seems inconsistant with their broader view. For example, if cash is the riskiest investment out there, then why does the extremely minute risk of your mutual fund "breaking the buck" even matter in comparison? If investing in cash is, in their view, conceeding massive losses to inflation and currency devaluation, why is holding a money market fund so "strategic"?

An alternative view is that a money market fund really is the safest place you can put your money, besides treasury bonds and FDIC insured accounts. The odds of a Fidelity or a Legg Mason breaking the buck are almost zero, especially now that the size of the SIV and ABCP market has shrunk to a tiny fraction of what it was just 1 year ago. If they do "break the buck", customers are likely to lose only a penny or two on the dollar. For reference, that's less than the stock market went down *today alone*. Money Market Funds are the safest non-government-insured investments in the world, a fact proven by the sector's ability to weather the extreme crisis of ABCP and SIVs in 2007. If Marotta thinks that they are "clearly" not the safest investment, I would ask what they think is safer. Prehaps commodity companies (like mining companies and oil companies) are safer in Marotta's mind, despite not being safer by any measurable, historical standard. That is what they've seemed to suggest in the past.

As an advisor, Marotta Asset Management is strongly incentivized to advocate more active management of money and more complicated investment strategies than boring, predictable money market funds etc. That way, more people will be convinced that they need the help of a financial planner or a full-service broker. Prehaps they are hoping to pick up a few new customers who are suddenly very scared of their money market funds and cash accounts, and want to go into "safer" investments like gold mining stocks.

Ack, I just realized my last comment looks suspiciously like spam. Just to be clear, I am not a robot - that link really is relevant!

Thanks for your article,

Tracy ho

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