Hi sardonyx. Though I can not completely answer your question, I would like to share some things that I know and hope might help. Which probably you and many others have already realized, but I'm sharing it anyway. 
Usually mutual fund companies like PhilamLife, Sunlife Financial, Investment sections of commercial banks and many others are engaged in many other investment forms – stock market/equities, insurance, real estate, credit/loans etc . That’s why technically, they are investments firms rather than mutual fund companies only. Thus, for these companies to “fold up”, it has to lose some huge amount of money from one or more forms. However, because of the diversity of investments, losses may be balanced by gains. Actually, what’s important is that a company’s asset must be more than it’s liability, if not at least equal. Or that it must always have some capital to invest in, to try to earn income again, to try to regain stability.
Again because of the diversity of investments, initially net loss loss is usually less than net income. Unless of course, the company is purely or mostly engaged in one form which is in bad shape like mortgage, which exactly is what’s happening in some companies in the US. Or unless, many of the company’s business is losing , which may be brought about by a bad economy or manager. Or in the long term, it fails to earn income again, which is usually because of a bad strategy.
However, there is another factor that may speed up the fall of these investment firms. And that is the loss of the investor’s confidence. You see these firms’ capital come from the owners (major investors) and minor investors (us). When there is loss of confidence, as what happens when people learns of a huge loss in a company, they stop putting in money and worse, withdraws whatever it is that they have invested in. It must be remembered that the assets of these companies are not all in cash or “liquid”. When “liquidation” overwhelms the amount of available cash, this leads to a vicious cycle of more people getting their money out, less cash, more withdrawals, eventually less available capital for the company, less income for the company. And finally bankcruptcy when the company would have to let go of all its assets only to pay back all its investors – that is if will still be able to.
Thus the possibility of companies closing down is there. Mutual funds are not insured, thus we might not be able to get our money back. But we must keep in mind that though the US financal crisis might have a seismic impact in the economy of progressive countries like us, it doesn’t mean that we will end up losing big or losing all of our investment. It can’t be denied that our investement firms have exposures to the problematic companies that have fell or are bound to fall down, but we must also consider their exposures to other companies that are up to now and in the future will remain stable. Not to mention that mutual funds and UITFs are managed by more experienced people (than us) who would know when and where to put our money in.
Investment is all about uncertainties in the short term. But gain in the long term. Certainly panic will not help. I am not telling you not to liquidate your investments, but to think twice before redeeming at a loss, much more to contribute to the problem.
Instead, let us use what successful investors here are telling us over and over again, invest in the long term, cost-average, diversify, and SAVE.
I, for one, tries my best not to redeem my investments which have already lost. It's really hard not to be affected, but instead I focus on working and saving. Basta, I will not redeem at a loss. Period.
Usually mutual fund companies like PhilamLife, Sunlife Financial, Investment sections of commercial banks and many others are engaged in many other investment forms – stock market/equities, insurance, real estate, credit/loans etc . That’s why technically, they are investments firms rather than mutual fund companies only. Thus, for these companies to “fold up”, it has to lose some huge amount of money from one or more forms. However, because of the diversity of investments, losses may be balanced by gains. Actually, what’s important is that a company’s asset must be more than it’s liability, if not at least equal. Or that it must always have some capital to invest in, to try to earn income again, to try to regain stability.
Again because of the diversity of investments, initially net loss loss is usually less than net income. Unless of course, the company is purely or mostly engaged in one form which is in bad shape like mortgage, which exactly is what’s happening in some companies in the US. Or unless, many of the company’s business is losing , which may be brought about by a bad economy or manager. Or in the long term, it fails to earn income again, which is usually because of a bad strategy.
However, there is another factor that may speed up the fall of these investment firms. And that is the loss of the investor’s confidence. You see these firms’ capital come from the owners (major investors) and minor investors (us). When there is loss of confidence, as what happens when people learns of a huge loss in a company, they stop putting in money and worse, withdraws whatever it is that they have invested in. It must be remembered that the assets of these companies are not all in cash or “liquid”. When “liquidation” overwhelms the amount of available cash, this leads to a vicious cycle of more people getting their money out, less cash, more withdrawals, eventually less available capital for the company, less income for the company. And finally bankcruptcy when the company would have to let go of all its assets only to pay back all its investors – that is if will still be able to.
Thus the possibility of companies closing down is there. Mutual funds are not insured, thus we might not be able to get our money back. But we must keep in mind that though the US financal crisis might have a seismic impact in the economy of progressive countries like us, it doesn’t mean that we will end up losing big or losing all of our investment. It can’t be denied that our investement firms have exposures to the problematic companies that have fell or are bound to fall down, but we must also consider their exposures to other companies that are up to now and in the future will remain stable. Not to mention that mutual funds and UITFs are managed by more experienced people (than us) who would know when and where to put our money in.
Investment is all about uncertainties in the short term. But gain in the long term. Certainly panic will not help. I am not telling you not to liquidate your investments, but to think twice before redeeming at a loss, much more to contribute to the problem.
Instead, let us use what successful investors here are telling us over and over again, invest in the long term, cost-average, diversify, and SAVE.
I, for one, tries my best not to redeem my investments which have already lost. It's really hard not to be affected, but instead I focus on working and saving. Basta, I will not redeem at a loss. Period.
