Breaking The Buck

AAA

DEFINITION of 'Breaking The Buck'

When the net asset value (NAV) of a money market fund falls below $1. Breaking the buck can happen when the money market fund's investment income does not cover operating expenses or investment losses. This normally occurs when interest rates drop to very low levels, or the fund has used leverage to create capital risk in otherwise risk-free instruments.

INVESTOPEDIA EXPLAINS 'Breaking The Buck'

The NAV of a money market fund normally stays constant at $1 because investment products usually do not produce capital gains or losses. As such, the principal in a money market fund usually remains constant, making risk exposure non-existent compared to stocks, bonds and non-money market mutual funds.

The first case of a money market fund breaking the buck occurred in 1994, when Community Bankers U.S. Government Money Market Fund was liquidated at 94 cents because of large losses in derivatives.

RELATED TERMS
  1. Money Market Fund

    An investment fund that holds the objective to earn interest ...
  2. Money Market Yield

    The interest rate earned by investing in securities with high ...
  3. Stock

    A type of security that signifies ownership in a corporation ...
  4. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
  5. Leverage

    1. The use of various financial instruments or borrowed capital, ...
  6. Liquidation

    1. When a business or firm is terminated or bankrupt, its assets ...
Related Articles
  1. Mutual Funds & ETFs

    Money Market Mutual Funds: A Better Savings Account

    An good alternative to the traditional savings account is the money market mutual fund. It's easy, safe and has better returns.
  2. Mutual Funds & ETFs

    Introduction To Money Market Mutual Funds

    Learn about the easiest way to benefit from money market securities.
  3. Options & Futures

    Do Money-Market Funds Pay?

    This investment provides security, but its returns may not be adequate for long-term investors.
  4. Insurance

    Breaking The Buck: Why Low Risk Is Not Risk-Free

    Money market funds have been assumed to be safe investments, and they are - but only to a point.
  5. Bonds & Fixed Income

    The Money Market: A Look Back

    Learn how past inflationary periods can predict future real rates of return for cash investments.
  6. Investing

    What is a mutual fund's NAV?

    Net asset value (NAV) represents a fund's per share market value. This is the price at which investors buy ("bid price") fund shares from a fund company and sell them ("redemption price") to ...
  7. Investing

    Why do some closed-end mutual funds trade above or below their net asset values?

    Intuition tells us that a mutual fund's net asset value (NAV) (the net value of all assets within the mutual fund's portfolio divided by the number of outstanding shares) should be identical ...
  8. Retirement

    The Money Market

    If your investments in the stock market are keeping you from sleeping at night, it's time to learn about the safer alternatives in the money market.
  9. Mutual Funds & ETFs

    What are the risks involved in keeping my money in a money market account?

    Setting aside funds in a money market account can be a safe investment strategy, but investors should be aware of the risks inherent to money market options.
  10. Bonds & Fixed Income

    How does preferred stock differ from company issued bonds?

    Discover the primary differences between preferred stock and corporate bonds, two income-generating investment vehicles issued by certain companies.

You May Also Like

Hot Definitions
  1. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  2. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  3. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  4. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  5. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  6. Break-Even Analysis

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even ...
Trading Center