RSSFinding Shelter From the Wall Street Storm in ETFs
By Tom Lydon | September 18, 2008 | 3:31 PM | 0 Comments
After a week like this, when even the safety of money markets is being questioned, investors are wondering where on earth they can go.
There are places, but with the wild swings of the last few days, caution is the name of the game.
First of all, most money markets are still as safe as they ever were. Yesterday, the Reserve Primary Fund became the first money market fund in 14 years to expose investors to losses after writing off $785 million of debt issued by Lehman Brothers (NYSE: LEH). The net asset value of the fund "broke the buck," falling below $1 a share to $.97.
Investors often turn to money markets, which are often seen as the next bext thing to cash. However, many institutions came out and said their money markets had no exposure to Lehman.
At your brokerage or bank, there are safety nets in place for your money. The Federal Deposit Insurance Corporation (FDIC) insures up to $100,000 per depositor (not per account). Owners of retirement accounts are insured up to $250,000 per owner, per insured bank. At the Securities Investor Protection Corporation (SIPC), your account up to $500,000 per customer is insured.
For investing, many investors are heading over to hard assets like gold, or Treasury bonds. Moving into U.S. Treasuries is a standard move when the markets go volatile. Yesterday, there were a few differences. Investors moved out of high-yield (or "junk bonds") on fears of defaults. Among these funds are:
• iShares Lehman 1-3 Year Treasury Bond (NYSE: SHY)
• iShares Lehman 10-20 Year Treasury Bond (NYSE: TLH)
• iShares Lehman Credit Bond Fund (NYSE: CFT)
• iShares Lehman TIPS Bond (NYSE: TIP)
Meanwhile, gold has seen a major resurgence this week, including a record one-day rise of more than 11%. Gold is known for holding its value, so when the dollar weakens or the markets start to whipsaw, investors seek its shelter. Tuesday and Wednesday combined for a two-day, $110 jump in the metal. ETFs to capture this spike include:
• PowerShares DB Gold Fund (NYSE: DGL)
• SPDR Gold Shares (NYSE: GLD)
• iShares Comex Gold Trust (NYSE: IAU)
We always caution, above all else, the importance of having a strategy and sticking to it. It's more important now than ever. If you exited some of the more volatile funds when they dropped 8% off their high or below their 200-day moving average, you are likely sitting on the sidelines now breathing a sigh of relief.
Check out Tom's new book iMoney here.
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