Stunning Realizations and a Lament on Lack of Control

We take many things for granted. Have to. Couldn't function otherwise. Until something "bad" happens, you do not realize that your assumption/presumption about this or that was founded on nothing but complacency. I wanted to share with you a couple of my recent "Ah-Hah's!"--an awakening from a complacency stupor and slapping myself on my forehead. These investigations began with my concern about the composition and safety of my money market accounts.

First: When I was questioning Fidelity about the default for my retirement brokerage accounts, the automatic default is FDRXX--Fidelity Cash Reserves. With all of the dubious investments to goose interest rates, I became very concerned about the quality of what is in these Cash Reserves. Here it is from the prospectus. I've highlighted the investment risks. These are all things that can lose you money.
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Investment Objective

Cash Reserves seeks as high a level of current income as is consistent
with the preservation of capital and liquidity.

Principal Investment Strategies

· Investing in U.S. dollar-denominated money market securities of domestic
and foreign issuers and repurchase agreements.

· Potentially entering into reverse repurchase agreements.

· Investing more than 25% of total assets in the financial services
industries.

· Investing in compliance with industry-standard regulatory requirements for
money market funds for the quality, maturity, and diversification of
investments.

Principal Investment Risks

· Interest Rate Changes. Interest rate increases can cause the price
of a money market security to decrease.

· Foreign Exposure. Entities located in foreign countries can be
affected by adverse political, regulatory, market, or economic developments in
those countries.

· Financial Services Exposure. Changes in government regulation and
interest rates and economic downturns can have a significant negative effect on
issuers in the financial services sector.

· Issuer-Specific Changes. A decline in the credit quality of an
issuer or a provider of credit support or a maturity-shortening structure for a
security can cause the price of a money market security to decrease.

An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the fund.

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To be clear, I'm not suggesting that losses are imminent, but I did want to highlight these risks to what you think might be "safe" assets.

Second: When I called Fidelity, unfortunately I talked to someone on the trading desk that knew less than I did. That was not comforting. I received two pieces of patently wrong information.

1. I was told that the NAV (net asset value) would never decrease below $1. That's not true, as you can see from the risks above. In fact, it says this very clearly in the window on my screen as you can see here.
2. After I pointed out the error, I was then told that SIPC would protect me in the event of a loss. SIPC (and I urge you to read about SIPC here). I informed him that SIPC was only to protect me in the event of institutional failure.
   

I then had this moment of clarity that turned to disgust. I'm unable to own cash in a retirement account. "So what?", you say. The financial services industry is taking YOUR money and investing it in "stuff" (see risks above) without your really having much of a say so. You have to opt out and incur expenses. I have to make a specific trade, wait the required amount of time and incur a trade fee to choose something else. They expose your assets to risk, skim a fee. And the realization that I CANNOT HAVE CASH, has left me very angry. These are my assets, and I do not have control over them.

My conversation with Fidelity is a reminder that you MUST educate yourself. Whether it is a health, financial, personal, legal matter, you absolutely MUST become familiar with the issues. I've worked with professionals (insurance, lawyer, accounting) my entire career. Though they were the "experts", I was the business-side expert--and I had to have a command of the prevailing issues to educate the professional as to my business. YOUR business, IS your business. Educate yourself about your risks. When you interact with a professional, you will get a much better outcome.

Now, regarding brokerage failure. With the E-trade scare about solvency issues due to their foray into subprime, I'm electing to move my account. I learned about this fear while watchint CNBC at the beach. I was very concerned, but I knew about SIPC protection. But when you have securities held in a margin account, you have a lesser claim position. I need to study further the same link that I gave you to understand my exposure. I'm not futzin' around. I opened a TD Ameritrade account. Hopefully, I will have no issues with this transfer.

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