Vanguard Municipal Money Market VMSXX 1.39%

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Bimmer
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Vanguard Municipal Money Market VMSXX 1.39%

Post by Bimmer » Thu Apr 05, 2018 11:46 pm

Just noticed that Vangaurd Municipal Money Market VMSXX is up to 1.39%. In the 35% tax bracket, that is a tax-equivalent yield of 2.14%!

This significantly beats the high rate online savings accounts I have at 1.8% and 1.6%.

Is VMSXX FDIC insured? If not, should I worry about that?

Thanks in advance for your replies.

-Bimmer
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onourway
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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by onourway » Fri Apr 06, 2018 5:25 am

The municipal money market yields appear to spike at end of quarter. I would run your calculations based on the past year's yield between the two funds for a more accurate comparison. Until a few days ago muni funds were in the 0.8% range.

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by Bimmer » Mon Apr 09, 2018 10:39 pm

Says 1.40 on Vanguard web site now. Does that mean you expect this to drop going forward? Seems like all rates only going up, including some of my online savings accounts.
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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by Artsdoctor » Mon Apr 09, 2018 11:22 pm

Bimmer wrote:
Thu Apr 05, 2018 11:46 pm
Just noticed that Vangaurd Municipal Money Market VMSXX is up to 1.39%. In the 35% tax bracket, that is a tax-equivalent yield of 2.14%!

This significantly beats the high rate online savings accounts I have at 1.8% and 1.6%.

Is VMSXX FDIC insured? If not, should I worry about that?

Thanks in advance for your replies.

-Bimmer
If you're in the 35% marginal bracket, you're probably also subject to the NIIT of 3.8%. You might also consider looking at Vanguard's state-specific money market funds, if that would apply to you.

Money market funds are not FDIC-insured. The likelihood of a Vanguard money market fund "breaking the buck" would have to be considered virtually zero and if it were to happen, you'd have a lot more things to worry about.

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by onourway » Tue Apr 10, 2018 5:34 am

Bimmer wrote:
Mon Apr 09, 2018 10:39 pm
Says 1.40 on Vanguard web site now. Does that mean you expect this to drop going forward? Seems like all rates only going up, including some of my online savings accounts.
They did the same thing at the end of last quarter. I'm just saying the YTD/last year numbers probably provide a better estimate of the spread.

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neurosphere
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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by neurosphere » Tue Apr 10, 2018 7:38 am

onourway wrote:
Tue Apr 10, 2018 5:34 am
Bimmer wrote:
Mon Apr 09, 2018 10:39 pm
Says 1.40 on Vanguard web site now. Does that mean you expect this to drop going forward? Seems like all rates only going up, including some of my online savings accounts.
They did the same thing at the end of last quarter. I'm just saying the YTD/last year numbers probably provide a better estimate of the spread.
That's interesting. Is this quarter-end effect consistent? Does it affect only this fund? All municipal money markets? All bond funds? What drives it?
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes".

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neurosphere
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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by neurosphere » Tue Apr 10, 2018 7:42 am

I plotted the SEC yield vs date for the past two years:

Image

The obvious peaks occurred on Oct 14, Jan 3, April 27, July 6, Oct 9, Jan 3 and "today".

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neurosphere
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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by neurosphere » Tue Apr 10, 2018 8:02 am

After some research, it seems this quarter-end effect is a well known thing for money market funds. I learn something every day! Best I can tell, at the end of the quarter there is decreased supply of the underlying financing instruments. This leads to increased volatility around quarter end. According to the following article, this effect was worse prior to the financial crisis, but now there are some reforms in place to decrease this effect? But looking at the Vanguard MM yields the past 2 quarters, it still seems as if this effect is huge. Anyway, I've never noticed this before, probably because overall yields on MM funds were so low for so long. A 20% move on a 0.1% yield doesn't really stand out. :D

http://libertystreeteconomics.newyorkfe ... arket.html

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by onourway » Tue Apr 10, 2018 8:09 am

Interesting. I haven't been noticing the same changes in the Prime Fund.

Where are you getting the historical yield data from?

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by livesoft » Tue Apr 10, 2018 8:14 am

The ends of the last 2 quarters were preceded by hikes in the FFR just a couple weeks before those ends. I would expect the same kind of hike in June before the end of this quarter.
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neurosphere
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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by neurosphere » Tue Apr 10, 2018 8:26 am

livesoft wrote:
Tue Apr 10, 2018 8:14 am
The ends of the last 2 quarters were preceded by hikes in the FFR just a couple weeks before those ends. I would expect the same kind of hike in June before the end of this quarter.
That's a good point. And I'll note that this known end-of-quarter effect is usually described as extra volatility, and not necessarily that yields consistently rise (or drop).

Although, all things equal, increases in the funds rate might be expected to cause a rapid increase in the yield which then plateaus, instead of a sharp up/down type movement.

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by Riley15 » Tue Apr 10, 2018 9:50 am

neurosphere wrote:
Tue Apr 10, 2018 7:42 am
I plotted the SEC yield vs date for the past two years:

Image

The obvious peaks occurred on Oct 14, Jan 3, April 27, July 6, Oct 9, Jan 3 and "today".
I also can't seem to find a source for historical SEC yield data, wondering where you got this info? The distribution yield is what actually matters since that's what gets paid out but curious to see a historical comparison between the SEC yield and distribution yield.

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by neurosphere » Tue Apr 10, 2018 10:08 am

Riley15 wrote:
Tue Apr 10, 2018 9:50 am
I can't also seem to find a source for historical SEC yield data, wondering where you got this info? The distribution yield is what actually matters since that's what gets paid out but curious to see a historical comparison between the SEC yield and distribution yield.
I used vanguards "historical price" feature and cut/paste into excel to make the chart. You can only get daily data for one year at a time, so I needed to do two rounds and splice together.

Of note, I looked at a one-year chart on the prospectus of a Schwab municipal money market fund, and the shape was identical for that time period (but with lower yields due probably to higher expenses).

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by informal guide » Tue Apr 10, 2018 10:08 am

This month there may be one other impact that is seasonal - -it is tax payment month and many muni money fund holders liquidate some of their muni mm funds to pay Federal income taxes. (Although I am not in this fund, I certainly have a large tax bill to pay within the next few days!)

Five out of the last 10 days there have been outflows from this fund, including a large outflow on April 3.

https://personal.vanguard.com/us/funds/ ... true#tab=2

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by Riley15 » Tue Apr 10, 2018 10:31 am

neurosphere wrote:
Tue Apr 10, 2018 10:08 am
Riley15 wrote:
Tue Apr 10, 2018 9:50 am
I can't also seem to find a source for historical SEC yield data, wondering where you got this info? The distribution yield is what actually matters since that's what gets paid out but curious to see a historical comparison between the SEC yield and distribution yield.
I used vanguards "historical price" feature and cut/paste into excel to make the chart. You can only get daily data for one year at a time, so I needed to do two rounds and splice together.

Of note, I looked at a one-year chart on the prospectus of a Schwab municipal money market fund, and the shape was identical for that time period (but with lower yields due probably to higher expenses).
Thanks, got it. Looks like the yield was also 1.4% on Jan 2nd then it dropped way back down. Seems to me this effect is specific to municipal money market funds only. I am not sure why this doesn't happen to other money market funds?

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by gmaynardkrebs » Tue Apr 10, 2018 11:45 am

I'm pretty sure there are unlimited transfers between Vanguard's money market accounts. If you have enough in them, why not swap them back in forth as the rates change.

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by neurosphere » Tue Apr 10, 2018 11:58 am

gmaynardkrebs wrote:
Tue Apr 10, 2018 11:45 am
I'm pretty sure there are unlimited transfers between Vanguard's money market accounts. If you have enough in them, why not swap them back in forth as the rates change.
Because when taking taxes into account, the Vanguard municipal funds still yield more than the Prime money market, for example. To my eye, it seems that the troughs are the "accurate" value of the fund, while the "peaks" are a temporary perk. Put another way, if one is in the 25% or higher bracket, the municipal money market always outperforms the prime money market fund. So it's best to just stay in the municipal money market.

Now, whether someone in the lower brackets might benefit by moving into the muni fund only during the peaks, hmm, possible. But wouldn't a lower income investor just be better off in a high yield savings account anyway?

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by onourway » Tue Apr 10, 2018 12:14 pm

neurosphere wrote:
Tue Apr 10, 2018 11:58 am
gmaynardkrebs wrote:
Tue Apr 10, 2018 11:45 am
I'm pretty sure there are unlimited transfers between Vanguard's money market accounts. If you have enough in them, why not swap them back in forth as the rates change.
Because when taking taxes into account, the Vanguard municipal funds still yield more than the Prime money market, for example. To my eye, it seems that the troughs are the "accurate" value of the fund, while the "peaks" are a temporary perk. Put another way, if one is in the 25% or higher bracket, the municipal money market always outperforms the prime money market fund. So it's best to just stay in the municipal money market.

Now, whether someone in the lower brackets might benefit by moving into the muni fund only during the peaks, hmm, possible. But wouldn't a lower income investor just be better off in a high yield savings account anyway?
I'm failing to see how the Municipal fund is a better choice than the Prime for someone at the 25% bracket. The 1 year average return for VMSXX was 0.86% which is a tax-equivalent yield of 1.146% in the 25% bracket - lower than the 1.2% average 1 year return for VMMXX.

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by neurosphere » Tue Apr 10, 2018 1:01 pm

onourway wrote:
Tue Apr 10, 2018 12:14 pm
I'm failing to see how the Municipal fund is a better choice than the Prime for someone at the 25% bracket. The 1 year average return for VMSXX was 0.86% which is a tax-equivalent yield of 1.146% in the 25% bracket - lower than the 1.2% average 1 year return for VMMXX.
Sorry, I was totally just eye-balling the daily yields , merely to see if perhaps a high bracket person might be able to time these and jump back and forth between a muni fund and the Prime. I didn't do any real math.

But actually, you supported my general point, that for the 25% bracket the two funds are essentially equivalent on average (1.14% vs 1.2%).

But let's see [goes off, does some math, comes back].

Below is a graph of the past 2 years, comparing the yields of the Vanguard Prime MM fund (BLUE line) to the Vanguard Municipal Money Market Fund (ORANGE LINE) which is TAX ADJUSTED to the 25% bracket (i.e. the stated yields divided by 0.75).

Image

My original point was, that to my eye (I looked at the graphs separately and mentally tax adjusted), the orange line was more often above the blue. But comparing it more directly, there are indeed times when one could time the yields and eke out some extra interest. If I instead use a 33% federal taxable rate, the blue line essentially never goes substantially below (oops) ABOVE the orange. In other words, at 33% there would never have been a period where switching to the taxable fund would earn you more than about 0.05% to 0.1% in yield, for a week or two here or there.

Anyway, I also estimate that at about the 25% bracket, moving $1,000,000 around between the two funds at reasonable (but not perfect) times, might earn one an extra $200 (taxable). But again, that's just by eye and doing math in my head. :D

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by gmaynardkrebs » Tue Apr 10, 2018 2:05 pm

neurosphere wrote:
Tue Apr 10, 2018 1:01 pm
onourway wrote:
Tue Apr 10, 2018 12:14 pm
I'm failing to see how the Municipal fund is a better choice than the Prime for someone at the 25% bracket. The 1 year average return for VMSXX was 0.86% which is a tax-equivalent yield of 1.146% in the 25% bracket - lower than the 1.2% average 1 year return for VMMXX.
Sorry, I was totally just eye-balling the daily yields , merely to see if perhaps a high bracket person might be able to time these and jump back and forth between a muni fund and the Prime. I didn't do any real math.

But actually, you supported my general point, that for the 25% bracket the two funds are essentially equivalent on average (1.14% vs 1.2%).

But let's see [goes off, does some math, comes back].

Below is a graph of the past 2 years, comparing the yields of the Vanguard Prime MM fund (BLUE line) to the Vanguard Municipal Money Market Fund (ORANGE LINE) which is TAX ADJUSTED to the 25% bracket (i.e. the stated yields divided by 0.75).

Image

My original point was, that to my eye (I looked at the graphs separately and mentally tax adjusted), the orange line was more often above the blue. But comparing it more directly, there are indeed times when one could time the yields and eke out some extra interest. If I instead use a 33% federal taxable rate, the blue line essentially never goes substantially below (oops) ABOVE the orange. In other words, at 33% there would never have been a period where switching to the taxable fund would earn you more than about 0.05% to 0.1% in yield, for a week or two here or there.

Anyway, I also estimate that at about the 25% bracket, moving $1,000,000 around between the two funds at reasonable (but not perfect) times, might earn one an extra $200 (taxable). But again, that's just by eye and doing math in my head. :D
Bear in mind that the new brackets (taxable income) for marrieds are
From $19050 - $77400, 12%.
From $77400 - $165000, 22%.
From $165000 - $315000, 24%
From $315000 - $400000, 32%.
Add 3.8% Medicare for many people in the 32% bracket, and I believe also for some toward the top of the 24% bracket. (I think it kicks in at $250K.) Many taxpayers in the 24% and 32% brackets will actually be paying 27.8% and 35.8%, respectively.

I would have to say that the muni MM advantage over Treasury MM right now seems to me to quite large for many two-earner couples, and even larger over CDs in high tax blue states, which tend to have more high income taxpayers. Through March, however, I believe the Muni MM has been at an annualized 1.08% (.27 X 4). Even at that low level, If my math is correct, that's almost a 1.7% taxable equivalent for higher earners who pay the medicare surcharge. Obviously, not as great for those avoid the Medicare surcharge.

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by darrvao777 » Fri May 18, 2018 3:53 am

I am planning on saving up for a house downpayment to be used anytime between now and the next 5 years

Should I fill up my FDIC-insured savings account first even if it's at a tiny interest rate?

Or just save for this downpayment in the Municipal Money Market fund (VMXXX)?

We will be in the 37% bracket

Thanks!

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by welderwannabe » Fri May 18, 2018 5:50 am

darrvao777 wrote:
Fri May 18, 2018 3:53 am
I am planning on saving up for a house downpayment to be used anytime between now and the next 5 years

Should I fill up my FDIC-insured savings account first even if it's at a tiny interest rate?

Or just save for this downpayment in the Municipal Money Market fund (VMXXX)?

We will be in the 37% bracket

Thanks!
I put most of my savings in VMSXX. I am also in the 37% bracket this year. The after tax yield at our tax rate is unbeatable at the moment.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by Beach » Fri May 18, 2018 1:18 pm

Bimmer wrote:
Thu Apr 05, 2018 11:46 pm
Just noticed that Vangaurd Municipal Money Market VMSXX is up to 1.39%. In the 35% tax bracket, that is a tax-equivalent yield of 2.14%!

This significantly beats the high rate online savings accounts I have at 1.8% and 1.6%.

Is VMSXX FDIC insured? If not, should I worry about that?

Thanks in advance for your replies.

-Bimmer
How do you do the math to get the tax equivalent yield? My wife and I combined are in the new 22% tax bracket. Have Ally currently, debating on if making the switch is worthwhile. Thanks!

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by stocknoob4111 » Fri May 18, 2018 8:11 pm

I just moved $50k to VMSXX because I thought the yield is going to be consistent at 1.4ish% which will be around 1.8ish taking my Fed bracket of 24% into account. I would be disappointed if this was just some quarter end thing. Does this interest rate swing affect the Prime Market Fund as well? If so, I will move it back to my Goldman Sachs savings since that is returning 1.7% now.

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by Kevin M » Fri May 18, 2018 9:08 pm

stocknoob4111 wrote:
Fri May 18, 2018 8:11 pm
I just moved $50k to VMSXX because I thought the yield is going to be consistent at 1.4ish% which will be around 1.8ish taking my Fed bracket of 24% into account. I would be disappointed if this was just some quarter end thing. Does this interest rate swing affect the Prime Market Fund as well? If so, I will move it back to my Goldman Sachs savings since that is returning 1.7% now.
The muni MM yields do seem to vary cyclically, quarterly, but Prime does not--it has been increasing steadily.

I have the bulk of my cash in CA Muni MM, but if my TEY drops below Prime, it only takes a few mouse clicks to move it. Still better than an Ally savings account. It is getting close.

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by Kevin M » Fri May 18, 2018 9:10 pm

Beach wrote:
Fri May 18, 2018 1:18 pm
How do you do the math to get the tax equivalent yield? My wife and I combined are in the new 22% tax bracket. Have Ally currently, debating on if making the switch is worthwhile. Thanks!
I recently did a post to explain this: viewtopic.php?f=10&t=248539

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by Kevin M » Fri May 18, 2018 9:17 pm

livesoft wrote:
Tue Apr 10, 2018 8:14 am
The ends of the last 2 quarters were preceded by hikes in the FFR just a couple weeks before those ends. I would expect the same kind of hike in June before the end of this quarter.
That doesn't explain it. If it did, we'd see a similar cycle in Prime MM fund, which we don't. It has just been continuously increasing.

Kevin
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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by xilex » Sat May 19, 2018 2:07 am

Hmm. I currently have savings stashed at Marcus, which is giving 1.7%, which is subsequently taxed. My effective tax rate is about 29%.

Looking at Vanguard Municipal Money Market Fund, which currently has SEC yield of 1.33%, is my calculation correct that the effective yield would be 1.33 / 0.71 = 1.87%, minus the fund fee, which is 0.15%, so final answer of 1.72%? Leaving money in the savings account would result in 1.7 * 0.71 = 1.21% final yield? And the SEC yield has to be at least 0.9% to make it "better" than the Marcus returns I think? 0.97 / 0.71 = 1.37, minus fees, 1.22%

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by deskjockey » Sat May 19, 2018 5:27 am

xilex wrote:
Sat May 19, 2018 2:07 am
Hmm. I currently have savings stashed at Marcus, which is giving 1.7%, which is subsequently taxed. My effective tax rate is about 29%.

Looking at Vanguard Municipal Money Market Fund, which currently has SEC yield of 1.33%, is my calculation correct that the effective yield would be 1.33 / 0.71 = 1.87%, minus the fund fee, which is 0.15%, so final answer of 1.72%? Leaving money in the savings account would result in 1.7 * 0.71 = 1.21% final yield? And the SEC yield has to be at least 0.9% to make it "better" than the Marcus returns I think? 0.97 / 0.71 = 1.37, minus fees, 1.22%
No--you've got two mistakes that are throwing things off. First, the SEC Yield for all MM funds is net of expenses, so you should not subtract the fund fee. Second, you are incorrectly comparing the rates. You either get the TEY for VMSXX by doing the math and then compare it to the unadjusted Marcus rate, or you do the math to get your after-tax rate for the Marcus rate and compare it to the VMSXX rate. Right now, you're doing both. The proper comparison is VMSXX 1.33/0.71=1.87%, then compare that to Marcus at 1.71%. Or, for the after-tax yield, you could do Marcus 1.7 * 0.71 = 1.21% and compare it to 1.33% for VMSXX. NOTE: this assumes you are either keeping state taxes out of the equation or do not pay state taxes. If you do pay state taxes and want a proper comparison, you would need to factor the state tax rate when computing both types of yield (TEY and after-tax) and apply it to BOTH of the products you are comparing.

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by welderwannabe » Sat May 19, 2018 5:50 am

deskjockey wrote:
Sat May 19, 2018 5:27 am
No--you've got two mistakes that are throwing things off.
Possibly 3, as a 29% tax rate doesn't exist in 2018 even after factoring in the possibility of NIIT. He used the word 'effective'. With something like this he/she really should be using his marginal rate to determine TEY and not an effective rate (which factors in deductions and all the tax brackets the person passed through to get to their marginal rate).
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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by brokendirtdart » Sat May 19, 2018 7:31 am

Kevin M wrote:
Fri May 18, 2018 9:08 pm


I have the bulk of my cash in CA Muni MM, but if my TEY drops below Prime, it only takes a few mouse clicks to move it. Still better than an Ally savings account. It is getting close.

Kevin
When we do an exchange between two Vanguard funds does your money become uninvested for long enough for it to affect returns? As it is an exchange I am assuming it does not, but I do not know for sure.

Example in your case, switching between CA Muni and Prime. I am considering doing the same with Prime and VMSXX.

Thanks

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by neurosphere » Sat May 19, 2018 9:08 am

Kevin M wrote:
Fri May 18, 2018 9:17 pm
livesoft wrote:
Tue Apr 10, 2018 8:14 am
The ends of the last 2 quarters were preceded by hikes in the FFR just a couple weeks before those ends. I would expect the same kind of hike in June before the end of this quarter.
That doesn't explain it. If it did, we'd see a similar cycle in Prime MM fund, which we don't. It has just been continuously increasing.

Kevin
I just assumed it was because the duration/maturity of the muni funds is one-third to one-half that of the prime fund. So any changes in the interest rate or economic environment are reflected three times as fast in the muni fund, whereas for the Prime funds there is smoothing going on. E.g. the "average weighted life" of the muni fund is 30 days, but for the prime fund this is 90 days. With a 30 day "turnover" one can see quarter specific changes, or "one-time" events such as announced/expected rate changes. But with the 90-day or "quarter-long turnover" of the underlying investments in the Prime fund, any changes due to rate announcements or other news events bump up against subsequent news and one can't as easily see it.

If you graph the yields of a set of bond funds of various short-ish durations, such as a muni fund, prime MM, short-term fund and limited term fund, the muni funds predict the changes in the longer duration funds, both in the short-term and long term. But the for the longer term funds, short-term changes can be masked by overall general trends. Anyway, that's what my eye sees.
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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by xilex » Sat May 19, 2018 12:41 pm

deskjockey wrote:
Sat May 19, 2018 5:27 am
No--you've got two mistakes that are throwing things off. First, the SEC Yield for all MM funds is net of expenses, so you should not subtract the fund fee. Second, you are incorrectly comparing the rates. You either get the TEY for VMSXX by doing the math and then compare it to the unadjusted Marcus rate, or you do the math to get your after-tax rate for the Marcus rate and compare it to the VMSXX rate. Right now, you're doing both. The proper comparison is VMSXX 1.33/0.71=1.87%, then compare that to Marcus at 1.71%. Or, for the after-tax yield, you could do Marcus 1.7 * 0.71 = 1.21% and compare it to 1.33% for VMSXX. NOTE: this assumes you are either keeping state taxes out of the equation or do not pay state taxes. If you do pay state taxes and want a proper comparison, you would need to factor the state tax rate when computing both types of yield (TEY and after-tax) and apply it to BOTH of the products you are comparing.
I see. Still much for me to learn. :sharebeer At my current marginal tax bracket, the federal tax rate will be 33%, and the state tax rate is 11.3% (California), so total of 44.3%. I used effective tax rate because I wanted to account for all the miscellaneous deductions. With the deductions it drops the state tax rate by about 2%; I'll just ignore that in the calculations for now.

So if I were to look at Vanguard California Municipal Money Market Fund (VCTXX), the current SEC yield is 1.24%. Therefore, 1.24/0.557 = 2.23%. Since Marcus is generating 1.71%, the final rate would be 1.71 * 0.557 = 0.95%. So given this, it seems to make more sense to keep a big chunk of liquid cash in VCTXX?

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by welderwannabe » Sat May 19, 2018 1:00 pm

xilex wrote:
Sat May 19, 2018 12:41 pm
So if I were to look at Vanguard California Municipal Money Market Fund (VCTXX), the current SEC yield is 1.24%. Therefore, 1.24/0.557 = 2.23%. Since Marcus is generating 1.71%, the final rate would be 1.71 * 0.557 = 0.95%. So given this, it seems to make more sense to keep a big chunk of liquid cash in VCTXX?
It looks like you are better off in VCTXX than Marcus, but not as better off as you think. You either discount Marcus down to after tax, OR you convert the Muni to a tax equivalent yield. You are doing both making the spread look much better than it is.

Compare 2.23% to 1.71%, not 2.23% to .95%. The second is an invalid comparison.
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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by ofckrupke » Sat May 19, 2018 1:40 pm

xilex wrote:
Sat May 19, 2018 12:41 pm
At my current marginal tax bracket, the federal tax rate will be 33%, and the state tax rate is 11.3% (California), so total of 44.3%.
That was 2017; there is no 33% bracket from 2018 to 2025.

The only way to have had this 33%/11.3% combination in 2017 was to be single filing, with federal taxable income under $416k and state taxable income over $322k.
For 2018-25, the 35% bracket for single filers spans taxable income range from $200k to 500k, so if there are no big changes in your employment or marital/filing status it's a fair bet that this is your bracket.
Since your AGI must be over 200k to end up here, the next added dollar of Net taxable Investment Income will be subject to the (federal) 3.8% NII surtax. On non-treasury income, you can take a deduction within the NII calculation for its state income taxation so for you the NII surtax is about 3.4% on taxable sources, except 3.8% on treasury income.
In terms of deduction effects on the regular federal tax: with this level of state taxation you will be SALT-capped out at $10k; you can't get the feds to underwrite any part of the next 11.3 cents of your state taxation in the regular tax, so the two rates are strictly additive.

Therefore I make your marginal rate on STCG, non-treasury interest, and nonqualified dividend income at 35+3.4+11.3 = 49.7%.
On treasury interest the marginal rate is 35+3.8 = 38.8%.
On long term capital gains or qualified dividend income, you're probably under the 422k taxable income for the 20% bracket, so your marginal rate for these forms of investment income would be 15+3.4+11.3=29.7%.
Your marginal rate on employment income, unless your medicare wages (refer to W-2) are under 200k there's a medicare surcharge of 0.9% on amounts over 200k, so at the margin this will be 35+11.3+0.9% = 47.2%.

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by Ricchan » Sat May 19, 2018 2:28 pm

Inspired by neurosphere's chart, I made an updated chart of SEC yields for VMMXX (Prime Money Market Fund) vs VMSXX (Municipal Money Market) with data up to 5/18/2018. I also included graphs for Tax Equivalent Yields at 24%, 32%, 35%, and 37%, and added vertical lines for each quarter.

Image
Larger original version at https://i.imgur.com/ADwvd8n.png
Last edited by Ricchan on Sat May 19, 2018 2:41 pm, edited 2 times in total.

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by Nearly A Moose » Sat May 19, 2018 2:36 pm

Anyone care to offer thoughts on Muni money market versus vanguard limited term tax exempt bond fund for large short term savings, such as a house downpayment? I chose the bond fund last year compared to a then 1.05% Ally account. Top federal tax bracket.
Pardon typos, I'm probably using my fat thumbs on a tiny phone.

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by xilex » Sat May 19, 2018 2:50 pm

welderwannabe wrote:
Sat May 19, 2018 1:00 pm
It looks like you are better off in VCTXX than Marcus, but not as better off as you think. You either discount Marcus down to after tax, OR you convert the Muni to a tax equivalent yield. You are doing both making the spread look much better than it is.

Compare 2.23% to 1.71%, not 2.23% to .95%. The second is an invalid comparison.
Okay, I understand now. I need to compare the SEC yield (1.24%) to the Marcus rate after tax, which is 0.95%. Alternatively, I can compare the Marcus rate, 1.71%, to the theoretical pretax bond yield, which is 2.23%. :D
ofckrupke wrote:
Sat May 19, 2018 1:40 pm

That was 2017; there is no 33% bracket from 2018 to 2025.

Therefore I make your marginal rate on STCG, non-treasury interest, and nonqualified dividend income at 35+3.4+11.3 = 49.7%.
On treasury interest the marginal rate is 35+3.8 = 38.8%.
On long term capital gains or qualified dividend income, you're probably under the 422k taxable income for the 20% bracket, so your marginal rate for these forms of investment income would be 15+3.4+11.3=29.7%.
Your marginal rate on employment income, unless your medicare wages (refer to W-2) are under 200k there's a medicare surcharge of 0.9% on amounts over 200k, so at the margin this will be 35+11.3+0.9% = 47.2%.
Yes, you're right. I was using the calculator at smartasset and did not notice they left it for 2017 numbers even though they talked about 2018 taxes on the same calculator.

Thanks for running those numbers. I've got some reading to do in the future with these other miscellaneous taxes besides federal/state taxes. Savings account interest is taxed as ordinary income, so it would fall under 47.2% rate, I believe.

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by Kevin M » Sat May 19, 2018 2:57 pm

neurosphere wrote:
Sat May 19, 2018 9:08 am
Kevin M wrote:
Fri May 18, 2018 9:17 pm
livesoft wrote:
Tue Apr 10, 2018 8:14 am
The ends of the last 2 quarters were preceded by hikes in the FFR just a couple weeks before those ends. I would expect the same kind of hike in June before the end of this quarter.
That doesn't explain it. If it did, we'd see a similar cycle in Prime MM fund, which we don't. It has just been continuously increasing.
I just assumed it was because the duration/maturity of the muni funds is one-third to one-half that of the prime fund. So any changes in the interest rate or economic environment are reflected three times as fast in the muni fund, whereas for the Prime funds there is smoothing going on.
I still don't see how the step-wise increases in FFR result in cyclical up and down changes in muni MM yields we see. Let's look at target FFR upper limit and 1-month Treasury (averaged weekly to smooth it a bit).

Image

We don't see the regular cyclical up and down in the 1-month Treasury like we do in the muni funds. The T-bill does anticipate the increase in target FFR.

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by gmaynardkrebs » Sat May 19, 2018 3:00 pm

Nearly A Moose wrote:
Sat May 19, 2018 2:36 pm
Anyone care to offer thoughts on Muni money market versus vanguard limited term tax exempt bond fund for large short term savings, such as a house downpayment? I chose the bond fund last year compared to a then 1.05% Ally account. Top federal tax bracket.
I like the short term muni better -- the duration of limited TE is too close to intermediate TE for short term savings IMHO.

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by WanderingDoc » Sat May 19, 2018 3:13 pm

VMSXX doesn't seem worth it today.

For a 24% federal/0% state, I get a TEY for VMSXX of 1.75%. Ally Savings is 1.60%, and the 11-month No Penalty CD I have is 1.75%. So, no FDIC insurance for an extra 0.00%-0.15% yield? Seems silly. Although I just checked the Ally site, and the No Penalty CD is listed at 1.50%. That seems strange that their CD rates would go down in this environment.
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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by deskjockey » Sat May 19, 2018 3:25 pm

WanderingDoc wrote:
Sat May 19, 2018 3:13 pm
VMSXX doesn't seem worth it today.

For a 24% federal/0% state, I get a TEY for VMSXX of 1.75%. Ally Savings is 1.60%, and the 11-month No Penalty CD I have is 1.75%. So, no FDIC insurance for an extra 0.00%-0.15% yield? Seems silly. Although I just checked the Ally site, and the No Penalty CD is listed at 1.50%. That seems strange that their CD rates would go down in this environment.
The 1.75% rate was a special time-limited promotion that ended in early January. After that, the rate reset to 1.5%. Apparently Ally tends to run these rate promotions at the end of each year, from what some have said on the forum.

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by neurosphere » Sat May 19, 2018 3:43 pm

Kevin M wrote:
Sat May 19, 2018 2:57 pm
I still don't see how the step-wise increases in FFR result in cyclical up and down changes in muni MM yields we see. Let's look at target FFR upper limit and 1-month Treasury (averaged weekly to smooth it a bit)....

We don't see the regular cyclical up and down in the 1-month Treasury like we do in the muni funds. The T-bill does anticipate the increase in target FFR.
Sorry, I didn't mean to imply any specific reason for the observed spikes or changes in the muni rates on any specific etiology. Someone else had mentioned FFR changes and I think I quoted or repeated that as an example. For muni bonds, these quarterly spikes have been attributed to liquidity problems, but I cannot find a confirmation of that theory. But my main point was that if whatever factors which cause the spikes in yields in munis also affect other debt instruments, it may not be easily observable due to the longer durations of other bond funds.

On the other hand, as you point out or demonstrate, we should be able to look directly at other individual debt instruments to see how they behave. E.g. if there were a Prime MM fund with a 30-day average duration, it may still not track/follow the muni funds.

The Vanguard muni fund contains 100% short term municipal debt. That's obvious.

The Prime MM fund contains (rounding broadly) 25% CDs, 25% Treasury Bills, and 50% Yankee/foreign bonds. Your graph of bills' rates show no noticeable spikes. Which makes sense if muni spikes are due to liquidity problems, which I assume would not be a factor for Treasuries. I have no idea if CDs or yankee bonds have liquidity issues or are otherwise affected by the same short-term things which affect muni MM funds. I assume not though.

Thus, I agree with you that the duration difference between the muni MM and the prime MM is not likely to account for the reason the Prime MM does not have these quarterly spikes. :D

NS

P.S. On the other hand...I plotted the slope/derivative of the muni yields vs the 2nd derivative of the Prime MM, and I did indeed see some correlation. I.e. when rates of change of the muni yields are large, does that affect the change in the Prime MM, even if the direction of the Prime MM does not change (e.g. doesn't decline but maybe rises more slowly). The plots were too ugly to share and explain, and I don't know how to quantify the effect so it could all be garbage, but I certainly thought this quarterly effect of munis showed up at least a little in the Prime MM. :D

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by neurosphere » Sat May 19, 2018 3:43 pm

Ricchan wrote:
Sat May 19, 2018 2:28 pm
Inspired by neurosphere's chart, I made an updated chart...
Great, thanks! I was in the process of updating the chart and then got distracted and moved on to something else. Thanks for adding the quarter-lines. It emphasises that indeed there is a quarterly spike in muti rates. I also "see" this effect in the Prime MM, just a smaller magnitude, as I previously mentioned.

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by ofckrupke » Sat May 19, 2018 3:51 pm

xilex wrote:
Sat May 19, 2018 2:50 pm
Savings account interest is taxed as ordinary income, so it would fall under 47.2% rate, I believe.
Ah, but it's ordinary investment (unearned) income, and like nonqualified dividend income, for you, at 49.7% marginal taxation.
[A savings account is a taxable investment, so its interest income is investment income, so in your AGI range it's subject to NIIT (and since it's state-taxable, within the confines of NIIT that state taxation is deductible so for you, at the margin, NIIT is (1-0.113)*3.8% rather than 3.8%). It's not wage earnings, so it's not subject to the 0.9% medicare surtax.]

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by Kevin M » Sat May 19, 2018 5:44 pm

neurosphere wrote:
Sat May 19, 2018 3:43 pm
Ricchan wrote:
Sat May 19, 2018 2:28 pm
Inspired by neurosphere's chart, I made an updated chart...
Great, thanks! I was in the process of updating the chart and then got distracted and moved on to something else. Thanks for adding the quarter-lines. It emphasises that indeed there is a quarterly spike in muti rates. I also "see" this effect in the Prime MM, just a smaller magnitude, as I previously mentioned.
I made my own chart. This is only for one year, and shows TEYs for my marginal tax rates of 27% and 8%.

Image

First obvious observations is that we're approaching the point at which I will exchange from CA muni MM to Prime MM.

Another observation is that the previous peaks in the spikes occurred very close to the beginning of a calendar quarter, but the most recent one didn't occur until almost a month after the beginning of the quarter (4/26/2018).

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by neurosphere » Sat May 19, 2018 6:09 pm

Kevin M wrote:
Sat May 19, 2018 5:44 pm
Another observation is that the previous peaks in the spikes occurred very close to the beginning of a calendar quarter, but the most recent one didn't occur until almost a month after the beginning of the quarter (4/26/2018).
Interestingly, there is that "notch" (April 1-ish) exactly where previous peaks occurred. That MAY represent a peak of sorts, with the subsequent peak being due to some other force?

Also, the height of these two most recent peaks is impressive. I wonder if that's standard. The problem with checking for this phenomenon going a few more years back (I assume) is that the rates were so low, that any possible peak may also have been minimal.

I just plotted the yield of the Muni MM fund from 1994-1996, and to my eye there looks to be monthly peaks, not quarterly. No time to post a chart right now. But I wish I could easily plot MM yields for a couple decades of data. I could brute-force it in about 30 minutes I suppose. Not not tonight. :D
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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by abuss368 » Sat May 19, 2018 6:47 pm

We moved to Vanguard Prime Money Market last summer and this has worked well.
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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by am » Sat May 19, 2018 7:00 pm

How about the Vang. Short term muni fund as a replacement for the money market at high brackets? The yield for short term muni is 1.76% and the price has fluctuated about 1% over the year. There’s also no frequent trading restriction as far as I know.

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by Kevin M » Sat May 19, 2018 8:26 pm

neurosphere wrote:
Sat May 19, 2018 6:09 pm
I just plotted the yield of the Muni MM fund from 1994-1996, and to my eye there looks to be monthly peaks, not quarterly. No time to post a chart right now. But I wish I could easily plot MM yields for a couple decades of data. I could brute-force it in about 30 minutes I suppose. Not not tonight. :D
Awhile back I wrote a script to pull yields from Vanguard into a Google Sheets spreadsheet for as many years as you want. I could use that if I cared enough.

Also, you can use something like this Google Sheets ImportHtml function to pull up to one year at a time, without having to copy/paste:

Code: Select all

IMPORTHTML(CONCATENATE("https://personal.vanguard.com/us/funds/tools/pricehistorysearch?radio=1&results=get&FundId=",E1,"&radiobutton2=1&beginDate=",MONTH(TODAY()-$B$1),"%2F",DAY(TODAY()-$B$1),"%2F",YEAR(TODAY()-$B$1),"&endDate=",MONTH(TODAY()),"%2F",DAY(TODAY()),"%2F",YEAR(TODAY())),"TABLE",31)
The fund ID is in cell E1 (e.g., 30 for Prime MM, 45 for Muni MM), and the number of days back from today to pull is in cell B1 (so 365 in cell B1 to pull a year). This could be pretty easily modified to pull a year at a time for different years.

I actually first developed this just to get the latest yields without having to look them up. I pull up to five days (so there would be just 5 instead of $B$1 in the example above), then use VLOOKUP to grab the last one. This is required because if you just specify to pull the yield for today and there is none, either because it's a weekend day or today's yield hasn't been posted yet, you get an error, but if you use today as the last day in a range for which yields exist, you'll get up to the five most recent yields without an error, even if there is no yield available for today.

Here is the formula to get just the most recently published yield:

Code: Select all

=VLOOKUP(TODAY(),IMPORTHTML(CONCATENATE("https://personal.vanguard.com/us/funds/tools/pricehistorysearch?radio=1&results=get&FundId=",B2,"&radiobutton2=1&beginDate=",MONTH(TODAY()-5),"%2F",DAY(TODAY()-5),"%2F",YEAR(TODAY()-5),"&endDate=",MONTH(TODAY()),"%2F",DAY(TODAY()),"%2F",YEAR(TODAY())),"TABLE",31),3,1)
In this case the fund ID is in cell B2.

Kevin
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