I see it similar to this currently: A account has mislaid half it’s value, do we keep it there since we usually have the detriment when we sell during the loss; or is it probable for the account to strech the finish zero? (i would have suspicion which it could go down to 0.001% of worth though never 0%). Also, what have been the risk of the account managers themselves starting under?
ARE MUTUAL FUNDS LIKELY TO SURVIVE ANY FINANCIAL DOWNFALL DUE TO THE DIVERSIFICATION OF SHARES?
Previous post: FIRST MOVER ADVANTAGE – IT COULD BE YOU THIS TIME!
Next post: STARTING A BUSINESS IN TREE WORK AND LANDSCAPING?
{ 6 comments }
A mutual fund owns stocks and/or bonds of hundreds of different companies and sometimes thousands of assets within those companies. EVERY single holding would have to be worth 0 for this to happen.
They won’t go down to zero. You have SIPC insurance against failure of the fund management company.
Since mutual funds are made up of stock from many companies there is pretty much no chance that they will fall to zero, or even .001%.
If you sell the fund with a loss, you lock in that loss. If you leave the money in the fund, you have the very strong likelihood that the fund value will increase in the future.
Fund managers get fired, if that’s what you mean.
The people that are really in trouble here are the ones that HAVE to pull money out of equities when the market is down like this. Like retirees that need to pull living expenses out of the market because they did not keep cash.
It is almost impossible for a mutual fund to hit 0. Since mutual funds are long term investments they are built for any kind of financial stress so I would “average down” with a mutual fund right now and buy into the discount market. The risk to fund managers is a lack of a paycheck, most fund managers get paid a commission on top of a trade fee. But, the trade fee is not all that large and commissions is where the real money is, so with a downward economy fund managers see a shrinking check,
I think it would be difficult for a fund to reach 0.
But I suppose this could happen if the fund has leveraged itself like a hedge fund. But I don’t think this is normal.
In other words, I don’t know either. But I suppose that you could imagine a scenario in which every investor but you redeemed their shares and the office rent for the fund might exceed your balance or something equally as far fetched.
It would seem that the most likely scenario would be that the fund will more or less follow the index that it tries to track or out perform.
Mutual funds are protected by the Investment Company Act of 1940 . Not SIPC, that protects your broker. A mutual fund company is a separate company owned by the shareholders, with a board of directors. The directors hire the fund company to manage the assets. Under the Investment Company act of 1940 if the fund manager goes bankrupt their creditors cant touch the assets in the fund. Large redemptions can hurt a fund by reducing assets and increasing the expense ratio and reducing the returns.. The chances of the companies within a fund becoming completely worthless are pretty low..
Comments on this entry are closed.