"Cash-like" securities - you may have some!

Think Your Cash Is Safe? Better Check With Your Broker

March 31, 2008:

On Friday, UBS became the first major investment firm to start "marking down" the value of Auction-Rate Securities held in client accounts (translation: each $1 will now be worth $0.80-$0.95). Why does this matter? Because most people who own Auction-Rate Securities think they own "cash."

In recent months, the credit crunch has frozen several sectors of the Auction-Rate Securities market, making the securities difficult or impossible to sell. Now, banks like UBS are responding by cutting their value--news that will likely be greeted with shock by many UBS clients, who thought they were holding cash.

There are four key lessons here:

1. There's no free lunch. That "bonus" interest your broker found for you? You're only getting it in exchange for increased risk. On Wall Street, there is NEVER a free lunch, so don't get duped into thinking you've found one.

2. "Cash-like" securities are not the same as "cash." So next time you hear your advisor say "just like cash!", hang up the phone.