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I am struggling with the topic of the U.S. Government Debt ceiling and my co-op’s investments. We currently invest in two funds: a short term (“ST”) treasury fund and a money market (“MM”) fund (Vanguard’s VSGBX / VSGDX & VMMXX, respectively). The ST bond fund is 100% invested in short term U.S. government bonds and earns about 1%. The MM fund is about 60% invested in the same only with a short duration and earns about 0.6%.
If Congress and the President can not agree on raising the debt ceiling, the ST bonds & bills would be affected first. Since both our Vanguard funds are ST in nature, they and funds like them, would also be impacted. I can only believe that the impact would be, if it happened at all, brief in nature but would impact the liquidity of our co-op’s funds (delaying our ability to access the funds), even to perhaps the breaking the buck of the MM funds.
So I am wrestling with what to do. The safe bet is to hold all of our reserve funds as cash (regular bank account, not in MM funds). The other option is to leave them as they are (knowing the risk of liquidity impairment). We have monthly cash needs from the reserve funds for capital projects and the like.
My fiscal responsibility side is leaning towards holding everything as cash.
What are other co-op and condo boards considering?
Thank you VP11104 for your response. For a lousy 1% investment return, there is too much risk - even if created by politics.
For me, I would rather forgo the $675 monthly earnings for a couple of months (1% on $810k) than to subject my shareholders on this even temporary risk. My Co-op is pulling out of our money market and short term treasury mutual funds today.
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I think that the debate about debt ceiling in Washington is just a political game that the GOP is playing with the Administration.
Not raising it would have catastrophic consequences on the country.
I am pretty sure we will have an 11th hour deal.
As for cash accounts, we maintain about 30% of our Reserves in cash and the rest with CD and MM.
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