First Stocks, Now Money Markets?

There are more than 800 money market funds out there and 33 million households invest in them.

David McPherson, founder and principal of Four Ponds Financial Planning and an ABC News personal finance columnist, said small investors should pay attention.

"The vast majority of money market fund holders do not need worry about it, but they should pay attention to what is happening, if anything, to understand how money market funds work," McPherson said.

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Money markets are used by people waiting to put their money into other stocks later or very conservative investors near retirement. McPherson said many of his retired clients have large sums of money in such funds.

"If you do see a money market fund that is paying quite a bit more than other money market funds, that's something you need to question why," he said. But he noted, "A top firm like Vanguard or Fidelity is going to do everything possible, within their power, to avoid breaking the buck with their money market funds."

Lawrence J. White, an economics professor at New York University's Stern School of Business, said such failures are "highly rare."

"If you had invested in Lehman Brothers stock or Fannie [Mae] and Freddie [Mac] stock, whatever price you paid, you would now have zero or very close to zero," White said.

Investors in this one fund still have 97 percent of their investment.

"Nobody likes to lose even 3 percent, but gee the losses are a whole lot smaller than if you had invested in the common stock of these companies that had gone bust," he said.

Money market funds aim at having a higher yield than regular savings accounts but are much more conservative than other mutual funds or stocks. Generally, the riskier an investment the larger the gain or loss.

As for the Reserve Primary Fund, White said: "They reached for yield and got burned."

White said large mutual fund companies like Vanguard or Fidelity would do everything in their power to avoid letting their money market accounts lose value.

"They could well decide that it is worth it for us to sacrifice some profits to subsidize some loss we might have because our brand-name reputation is so important," he said.