Spaxx: A Safe Investment Bet?

SPAXX, the Fidelity Government Money Market Fund, is a money market mutual fund offered as a default core position. It is insured by the SIPC (Securities Investor Protection Corporation) up to $500,000 in the event of financial troubles with the brokerage firm. While money market funds are usually considered low risk, they are not impervious to losses in rare situations. So, is SPAXX a safe investment?

SPAXX's safety relative to FDIC and SIPC

SPAXX is a money market mutual fund offered by Fidelity as a default core position. It is not FDIC-insured, but it is insured by the Securities Investor Protection Corporation (SIPC). The SIPC is a nonprofit organisation that protects investors' stocks, bonds, and other securities in the event of a brokerage firm's bankruptcy and asset loss. It is important to note that SIPC does not protect against investor losses resulting from market fluctuations.

FDIC stands for Federal Deposit Insurance Corporation, an independent government agency that ensures bank deposits are secure and stable by insuring them and reimbursing depositors in the event of bank failure. The FDIC-insured sweep program at Fidelity sweeps cash balances into an FDIC-insured interest-bearing account at one or more program banks, where deposits are eligible for FDIC insurance.

While SPAXX is not FDIC-insured, it is covered by the SIPC for up to $500,000 in securities, including a $250,000 limit for cash held in a brokerage account. This coverage is provided to all Fidelity brokerage accounts, including money market funds held in those accounts. Additionally, Fidelity offers "excess of SIPC" coverage, which would only be utilised if SIPC coverage is exhausted. This excess coverage does not cover investment losses in customer accounts due to market fluctuations.

In terms of safety, some investors argue that SPAXX is safer than a single bank's CD (certificate of deposit) because it is made up of CDs and treasury bills, and even if a bank collapses, there would not be a permanent loss. SPAXX is also backed by Fidelity, a well-funded company that is unlikely to let SPAXX fall to avoid significant outflows. However, it is important to remember that nothing is completely safe, and even FDIC-insured deposits have limits to their protection.

SPAXX's safety in a bank run scenario

SPAXX is a money market mutual fund offered by Fidelity as a default core position. It is specifically collateralized by government securities, making it safer than a broader money market fund that includes corporate debt. SPAXX is made up of US government repurchase agreements, US Treasury Bills, and US Treasury Coupons.

SPAXX is insured by the SIPC (Securities Investor Protection Corporation) up to $500,000 in the event of financial troubles with the brokerage firm. This means that in a bank run scenario, where people rush to withdraw their balances in cash, SPAXX investors are covered by the SIPC for up to $250,000 in cash awaiting investment and up to $500,000 in securities if Fidelity goes under.

Additionally, Fidelity has an extra $1.9 million per person of coverage through Lloyds of London. The securities held in this fund are short-term US treasury bonds that carry almost zero risk. Even if Fidelity goes under, the fund's securities could be picked up by another sponsor.

While it is technically possible to lose money in SPAXX, it is highly unlikely. SPAXX is designed to maintain a consistent share price of $1 by owning low-risk, short-term assets and returning cash to shareholders each month. The fund's short-term government debt securities also minimize interest rate risk.

In summary, SPAXX is considered a safe investment, even in a bank run scenario, due to its government collateralization, SIPC insurance, and Fidelity's additional coverage. However, it is important to remember that no investment is entirely risk-free, and investors should always conduct their own due diligence before investing.

SPAXX's safety compared to other investment options

SPAXX, or the Fidelity Government Money Market Fund, is a money market mutual fund. It is offered as a default core position for cash held in a non-retirement brokerage account. While no investment is completely safe, SPAXX is considered a safe investment option for several reasons.

Firstly, SPAXX is insured by the Securities Investor Protection Corporation (SIPC), a non-profit organisation that protects stocks, bonds, and other securities in the event of a brokerage firm's bankruptcy and asset loss. The SIPC covers SPAXX investors for up to $500,000 in the event of financial troubles. Additionally, Fidelity, the company that manages SPAXX, has an additional $1.9 million per person of coverage through Lloyds of London.

Secondly, SPAXX holds ultra-short-term, high-quality debt instruments, specifically collateralised by government securities. Its holdings consist primarily of low-risk, short-term federal debt securities like U.S. Treasuries, agency bonds, and government repurchase agreements. These short-term instruments minimise interest rate risk, and the fund's volatility is expected to be no greater than about 3% in either direction.

Thirdly, SPAXX does not face competition from bank deposit sweeps, as it is not covered by the Federal Deposit Insurance Corporation (FDIC). This means that investors are not limited by the FDIC's $250,000 coverage cap.

Compared to other investment options, SPAXX is considered safer than a single bank's certificate of deposit (CD) or a broader money market fund that includes corporate debt. While money market funds are usually considered low-risk, they are not entirely immune to losses in rare situations, such as during the Global Economic Crisis when the primary reserve fund broke the buck due to its commercial paper holdings.

In summary, SPAXX is a safe investment option due to its SIPC insurance coverage, its focus on short-term government securities, and its lack of competition from bank deposit sweeps. However, it is important to remember that no investment is entirely risk-free, and investors should always conduct their own due diligence before investing.

SPAXX's safety as a short-term investment

SPAXX is the Fidelity Government Money Market Fund, which invests in short-term federal debt securities like US Treasuries and government repurchase agreements. The fund aims to provide investors with monthly income while preserving their capital. As a money market fund, SPAXX seeks to maintain a consistent share price of $1 by owning low-risk, short-term assets and returning cash to shareholders each month.

SPAXX is considered safer than a broader money market fund that includes corporate debt. It is insured by the SIPC (Securities Investor Protection Corporation) up to $500,000 in the event of financial troubles with the brokerage firm. This means that in the unlikely event that Fidelity goes under, investors are covered for up to $500,000.

SPAXX is also collateralized by government securities, which further adds to its safety. Its holdings are mostly US government repurchase agreements, US Treasury Bills, and US Treasury Coupons. The short-term nature of these assets minimizes interest rate risk.

While it is technically possible to lose money in SPAXX, it is highly unlikely. The fund is designed to be a safe vehicle for investors to park their cash, with the primary objectives of liquidity and capital preservation.

In summary, SPAXX appears to be a safe short-term investment option for those looking for a money market fund with low risk and consistent returns.

SPAXX's safety as a long-term investment

SPAXX, or the Fidelity Government Money Market Fund, is a money market mutual fund. It is offered as a default core position for cash held in a non-retirement brokerage account. While no investment is entirely risk-free, SPAXX is considered a safe investment option for several reasons.

Firstly, SPAXX is backed by the Securities Investor Protection Corporation (SIPC), a non-profit organisation that insures up to $500,000 in the event of financial troubles with the brokerage firm. This provides a level of protection for investors. Additionally, Fidelity, the company that manages SPAXX, is well-funded and has a strong incentive to maintain the stability of the fund.

Secondly, SPAXX invests in short-term, high-quality debt instruments, such as US Treasury Bills, government repurchase agreements, and ultra-short-term debt. These investments are low-risk and have a short shelf life, minimising interest rate risk. The fund's objective is to maintain a consistent share price of $1 by investing in low-risk, short-duration assets.

Thirdly, SPAXX has a diversified portfolio, which helps to further mitigate risk. While the fund primarily invests in government securities, it also holds agency bonds, agency debt, and repos. This diversification provides a balance of stability and return potential.

Finally, SPAXX is regulated and has specific collateral requirements. It is subject to heavy regulation that dictates which assets the fund can hold. Additionally, SPAXX is specifically collateralised by government securities, which are considered safer than corporate debt.

In summary, SPAXX is a safe investment option due to its SIPC insurance, the financial stability of its managing company, its focus on short-term and high-quality investments, its diversified portfolio, and its adherence to regulatory and collateral requirements. While there is always some level of risk in investing, SPAXX's combination of safety measures makes it a relatively secure choice for investors seeking capital preservation and consistent income.

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