Less than a month from retirement? Keep your fingers crossed.

If you have a 401K plan or any one of a number of widely held investment accounts, Fitch Ratings has great news: You’re once again exposed to the travails of the euro zone.

U.S. money market funds – the large pools of cash used as a play-it-safe investment and money management tool – are once again plowing into the euro zone, particularly French banks. Euro-zone holdings of the 10 largest U.S. money market funds have nearly doubled since hitting a low last summer, when a euro-zone breakup seemed not only possible but, to some, likely.

Euro-zone banks now account for 14.5 percent of top fund holdings, or nearly $100 billion, according to Fitch’s research. The 10 firms analyzed by Fitch represent about 45 percent of the $1.5 trillion U.S. money market pool.

It is another sign that the capital flight that nearly wrecked the 17-nation currency union is reversing. Though the region’s economy remains turgid, the financial system has stabilized enough for the money funds to feel confident crossing the Atlantic again – even with new U.S. rules forcing them to be even more conservative.

Money market funds are supposed to be virtually risk-free for the investor – a dollar placed there is expected to hold its value, and the returns are correspondingly low. It’s a spot to park money to keep it safe, often offered as a cash alternative in 401k plans or as a holding place for funds waiting to be invested.

When the money market funds abandoned Europe in the spring of 2011 it accelerated the region’s slide toward breakup and stranded euro-zone banks without one of their staple sources of dollars. The fact that the money is returning, like green shoots after a forest fire, is a sign of growing confidence that a major meltdown has been avoided.

Maybe.

Fund managers have been wrong before – most notably when “safe” investments in Lehman Bros. led one New York fund to “break the buck" in 2008 and threaten an entire industry that serves as a sort of lubricant for the financial system.

But according to Fitch, the funds are not just dipping a toe in Europe, but investing in earnest. Money market investments are by nature short term. But the 10 large funds analyzed by Fisk have been increasingly willing to make slightly longer commitments – buying 40-day certificates of deposit at euro-region banks, for example, instead of using agreements good for only a day or two.

If you are less than month from retirement, keep your fingers crossed.

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Brad Plumer · March 1, 2013

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