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I'd suggest you go back and read earlier mail to get a better handle on
the subject, because the answer to both your question 1 and 2, is both.
Money you haven't committed to purchases and the results of security
sales is generally swept into a money fund, usually on a daily basis.
Often the broker will specify which sponsored fund is to be used for
that purpose, and some permit more than one fund to be chosen for that
purpose. Some will also require (If they also own a bank, and Schwab
does.) that the bank option is the only vehicle available for sweep cash.
The bank option, when required, is usually disadvantageous, compared to
a treasury money fund because of the substantially lower rate of return,
which is equally secure. In effect you are making a below market rate
of return investment to the banks advantage.
Additionally, most brokerages will have other non sweep money funds
available, with different potential rates of both risk and returns,
which can be purchased via direct purchase just as with any other
security. Schwab has a number of those, some of which are restricted to
treasury or government securities, and some of which are not.
Some of these funds are the ones which are now being closed to accounts
which are not already invested in those funds.
Richard
RB wrote:
I missed the early part.
1. Are you talking about the excess money in the customers accounts?
2. Or are you saying, (which is hard to believe). That as a customer of
Svhwab, one can't buy or put money in a money market fund?
If it is number 1. I agree with it and most brokerages are now or in
the future will be doing that. Because of the insurance.
I have already told my brokerage, I want mine in a bank.
----- Original Message ----- From: "The Funkhousers" <funkhouser@xxxxxxxx>
To: "Omega List" <omega-list@xxxxxxxxxx>
Sent: Saturday, December 15, 2007 9:14 PM
Subject: Last rant on Schwab
In an earlier memo I raised the question about what possible
motivations Schwab might have in closing money funds to new investors.
While the most plausible reason didn't come from our group, here's
what I got: 1) They now own a bank. If that were the case every
accountholder, when forced to, would move their cash elsewhere, for
the Schwab Bank current rate is about net one half of one percent.
They couldn't afford to lose the existing management fees they now
earn. 2) They didn't want to give newer investors the advantage of
participating in an investment pool where older existing holdings were
generating rates substantially above current rates. In other words
rate dilution for longer term holders. Very altruistic, but if that
was the real reason they'd create a new one for just for new money and
consolidate later when rates stabilized. 3) And the one I believe is
the most plausible -- They didn't want the exposure to law suits that
they would have if some of their current pricing on existing holdings
were at knowingly optimistic levels, and therefore any new money which
purchased shares at $1.00 per share overpaid.
I've been wrong before, on many occasions, but in my mind that's the
most logical opinion, and that's all it is.
Anybody know if others are closing money funds to new investors?
Hope I'm wrong again.
Richard
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