How safe is your cash?

[Jeff S.]

Invested in a stable value fund that maintains a stable net asset value for preservation of capital. Supposed to be safe but in talking with one of the advisers he informed me they had a large position in AIG before the crash but it was lucky their position matured right before everything hit the fan. Below is a disclosure. Should I be scared?

"The PLUS Fund invests in certain stable value investment contracts, described below, to seek to achieve, over the long run, returns higher than those of money market mutual funds and short-term bank rates, and relatively stable returns compared to short-to-intermediate term fixed income mutual funds. The PLUS Fund generally will not track shorter-term interest rates as closely as money market mutual funds due to its longer maturity, potential adverse market changes, and provisions in stable value contracts held by the PLUS Fund’s investment portfolio. In addition, while the PLUS Fund’s returns are generally expected to follow interest rate trends over time, they typically would do so on a lagged basis.

Investment Strategies — ICMA-RC employs a structured, multi-product, multi-manager approach in managing the PLUS Fund. The PLUS Fund invests primarily in a diversified and tiered portfolio of stable value investment contracts and in fixed income securities, fixed income mutual funds, and fixed income commingled trust funds (“fixed income assets”) that back certain stable value investment contracts. In addition, the PLUS Fund invests in money market mutual funds, as well as cash and cash equivalents. The PLUS Fund’s portfolio may include different types of investments with a variety of negotiated terms and maturities, and is diversified across sectors and issuers. The composition of the PLUS Fund’s portfolio and its allocations to various stable value investments and fixed income investment sectors, across the Fund’s multiple tiers, is determined based on prevailing economic and capital market conditions, relative value analysis, liquidity needs, and other factors.

The PLUS Fund primarily invests in stable value investment contracts that allow plan participants who invest in the PLUS Fund to make benefit withdrawals at book value, i.e., original book or contract value plus accrued interest, plus additional deposits less withdrawals, fees and expenses, and other adjustments.

The types of stable value investment contracts in which the PLUS Fund may invest are described below.

Traditional Guaranteed Investment Contracts (“GICs”) — contracts issued by insurance companies that guarantee (1) payments of interest at a fixed or floating rate and (2) repayments of principal. The amount invested by the PLUS Fund in each Traditional GIC becomes part of the insurance company’s general account assets, which are managed and invested as the insurance company deems appropriate. Payments of principal and interest under a GIC depend on the insurance company’s creditworthiness and ability to meet its obligations when they come due.

Separate Account GICs — contracts issued by insurance companies that are backed by fixed income assets held in a separate account at the insurance company that is held separate from the insurance company general account assets for the benefit of the PLUS Fund and any other contract holders in that separate account. The underlying fixed income assets are either managed by the insurance company, an affiliate of the insurance company, or a third party manager.

Synthetic GICs — contracts issued by insurance companies, banks or other financial institutions (a “Synthetic GIC issuer”) that are backed by fixed income assets owned by the PLUS Fund. The Synthetic GIC issuer contract, which provides for participant withdrawals at book value under certain conditions, is called a “wrap contract,” and the issuer may be referred to as a “wrap provider” or “wrapper.” The underlying fixed income assets are managed by fixed income managers retained by ICMA-RC or are invested in mutual funds or other pooled investment vehicles. Certain wrap providers require that they or an affiliate manage the portfolio that they wrap.

Bank Investment Contracts (“BICs”) — contracts that are similar but not identical to Traditional GICs, and are issued by a bank as a benefit responsive bank deposit.

Principal Investment Risks
Different risks are associated with the different types of stable value investment contracts in which the PLUS Fund invests. Generally, stable value investment contracts are illiquid and may not be assigned, transferred or sold to someone else without the permission of the issuing insurance company or bank. These contracts often include non-standard negotiated terms and do not trade in a secondary market.

Additional risks of investing in the PLUS Fund include, but are not limited to, failure of the issuers of GICs, BICs, Separate Account GICs, or Synthetic GICs to meet their obligations to the PLUS Fund; failure of ICMA-RC to meet its objectives or obligations, as investment adviser for the PLUS Fund; default or downgrade of the fixed income assets that back Separate Account GICs and Synthetic GICs; failure of the third party fixed income managers of the portfolios underlying the Separate Account GICs and Synthetic GICs to meet their investment objectives or their obligations to the PLUS Fund; loss of value or failure to redeem shares or allow withdrawals on a timely basis by one or more of the commingled investment vehicles in which the PLUS Fund invests, which may include money market mutual funds or other mutual funds.

There is no guarantee that the Fund will achieve its investment objective. You may lose money by investing in the Fund. The Fund’s principal investment risks include: Issuer Risk, Credit Risk, Interest Rate Risk, Liquidity Risk, Reinvestment Risk, Fixed Income Securities Risk, Derivative Instruments Risk, Securities Lending Risk. Please see the Risk Glossary for additional information about the Fund’s risks.

Please note that there are transfer restrictions that apply to the PLUS Fund. Please refer to the “Trading Restrictions” tab.

Management
Investment professionals and research analysts from the ICMA Retirement Corporation (ICMA-RC) serve as the portfolio management team for the PLUS Fund. ICMA-RC professionals design the structure of the Fund and supervise day-to-day activity associated with managing the portfolio. This includes contract purchases, contract negotiations, cash flow monitoring, and credit research on the issuing institutions. The ICMA-RC portfolio managers conduct relative value analysis to decide on the timing of asset placement and allocation of investments within the Fund."

[Tiger M.]

personal opinion from a simple Idaho boy, small print like this where others that I do not know control my assets, trip me out. We moved out of these types of investments in 2008 into trust deeds. if I screw up and loose money (which i have), I can live with it and learn from my mistakes. It says you should be alright so why worry? Oh, 3rd paragraph from the bottom says you can receive a letter that says your money's gone, thanks derivatives. ;-)

[Jeff S.]

Synthetic GICs. It pays 2.34% as a basically cash acct. Remember losing 30% in a Schwab, supposed safe almost like cash money market fund. Think it was value plus. Lawsuit brought back a little.

Keeping some liquidity just isn't that easy anymore.

The yield for cash is hard to beat but...

[Elliot Mendoza]

Older post but I typically buy silver whenever I have bulk cash sitting around. I have plans to liquidate and get into real estate when I come back from my deployment in September.