In times of severe financial stress, money market funds, which are generally thought to be highly safe investments, have been said to be in danger of “breaking the buck”. The goal of money market funds is to never lose money and maintain a net asset value (NAV), or per-share value, at $1, and when their NAV goes below $1, this is called breaking the buck. But how does this really work and why is it such a rare event? Salman Khan of the Khan Academy explains.
From this video, you’ll understand:
- How Net Asset Value (NAV) is calculated for money market funds
- Events that could cause money market funds to ‘break the buck’
- How ‘breaking the buck’ is traditionally avoided