Yesterday, USAA, the banking and investing giant who focuses its business on former and current military members and their families, reassured its customers of the company’s minimal exposure to the current financial crisis. Like most financial services companies, USAA is urging its clients not to loose face in this volatile market and to stick to their long term investing and saving strategies. USAA said in a release that many investors are letting their emotions override their better judgment and an investment’s fundamental values which is causing many stocks and other financial instruments’ values to swing wildly.
Many Americans have used money market funds as a savings account on steroids to provide a little more punch to their savings with cash like liquidity, a higher interest rate, and the safety of a stable $1 share price that does not change. Recent events such as Lehman Brothers defaulting on its bonds that were held by many money market funds at reputable finance companies such as Putnam and Bank of New York Mellon have caused some financial institutions to reduce their money market fund share price to as low as $0.97 and freeze some withdraws for the next seven days. Investors recently pulled a record $89.2 billion from money-market funds on Sept. 17 after the news broke and a small panic ensued throughout the market, according to Bloomberg, the financial news conglomerate. Unlike several of those money market funds that have experienced trouble, USAA has said that their exposure to Lehman Brothers’ common stock is extremely small and that they have absolutely no exposure to Lehman debt. I would be shocked if USAA devalued their money market funds under $1. I expect their share prices to continue providing the safe haven and security that members of the military and their families have grown accustom to receiving.
USAA and Military Money Might continue to encourage investors to review their investing and savings plans and focus on the long term and to be present in the market when the rebound occurs in order to reap the benefits.
Some reasons why USAA is a strong company during this turmoil:
• The USAA insurance group is AAA-rated by Standard & Poor’s for financial strength.
• USAA Federal Savings Bank remains well-capitalized (not short of cash).
• USAA mutual funds have minimal exposure to Merrill Lynch stock and debt.
• USAA mutual funds have minimal exposure to Lehman Brothers stock and zero exposure to Lehman debt (bonds).
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The current financial crises is complex and global and no single person, political party, or institution is solely to blame…..no matter what the media moguls on TV and radio tell us. It will ultimateley correct either through government intervention, market force (monetary supply demand correction), or some combination of the two. It surely does hurt!!
But at this time we should all look around the world and determine if there is a better country to live in and trust than the fuure of America; the answer, of course, is no!. With that in mind, the best course of action from my vantage point is that people, and particularly young people, should hang tough and stay cool.
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