Is there actually a “safe investment” in all of this chaos that investors can turn to when CDs, money markets and exchange traded funds (ETFs) all seem to be vulnerable?
In general, the money invested in traditional stock exchange-traded funds appears safe from rampaging credit markets; not safe from market movements, of course, but safe from the kind of credit risks that killed the Lehman ETNs, reports Matthew Hougan for Index Universe.
For example, the investment into iShares S&P 500 Index Fund (IVV) is like buying a sliver of of each of the 500 stocks held by those funds. This is different than an ETN, where you are buying a debt note from the underwriting bank.
Fixed-income funds operate much like traditional equity ETFs, in which investors hold a pro-rata share of the underlying markets. All such funds are exposed to the risks of the fixed-income market, which include defaults and even illiquidity.