Any issues keeping <$1MIL in VMFXX (Money Market Fund)?

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fastrak99
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Any issues keeping <$1MIL in VMFXX (Money Market Fund)?

Post by fastrak99 » Wed Sep 12, 2018 10:00 pm

Going to start my Vanguard journey with $500K-1MIL (3 fund portfolio) - but while I'm waiting to sort out details of allocation I want, etc -- are there any issues or repercussions with keeping that money in VMFXX in the meantime for up to 3 months or so? That way I can start collecting yields immediately while I get comfortable and setup with the rest.

Thank you in advance for any advice!

tibbitts
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Re: Any issues keeping <$1MIL in VMFXX (Money Market Fund)?

Post by tibbitts » Wed Sep 12, 2018 10:05 pm

fastrak99 wrote:
Wed Sep 12, 2018 10:00 pm
Going to start my Vanguard journey with $500K-1MIL (3 fund portfolio) - but while I'm waiting to sort out details of allocation I want, etc -- are there any issues or repercussions with keeping that money in VMFXX in the meantime for up to 3 months or so? That way I can start collecting yields immediately while I get comfortable and setup with the rest.

Thank you in advance for any advice!
It depends where the money is coming from. I'd not feel comfortable arbitrarily removing money from an existing equity allocation for many months - with my luck the market would surge while I was out of it, then plunge as soon as I invested again. If you will be mostly bonds, probably less of a worry.

fastrak99
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Re: Any issues keeping <$1MIL in VMFXX (Money Market Fund)?

Post by fastrak99 » Wed Sep 12, 2018 10:06 pm

tibbitts wrote:
Wed Sep 12, 2018 10:05 pm
fastrak99 wrote:
Wed Sep 12, 2018 10:00 pm
Going to start my Vanguard journey with $500K-1MIL (3 fund portfolio) - but while I'm waiting to sort out details of allocation I want, etc -- are there any issues or repercussions with keeping that money in VMFXX in the meantime for up to 3 months or so? That way I can start collecting yields immediately while I get comfortable and setup with the rest.

Thank you in advance for any advice!
It depends where the money is coming from. I'd not feel comfortable arbitrarily removing money from an existing equity allocation for many months - with my luck the market would surge while I was out of it, then plunge as soon as I invested again. If you will be mostly bonds, probably less of a worry.
Forgot to mention - money is just sitting @ bank collecting close to 0% yield :( :(

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rob
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Re: Any issues keeping <$1MIL in VMFXX (Money Market Fund)?

Post by rob » Wed Sep 12, 2018 10:13 pm

Maybe consider the tax free MM fund instead of Federal - depending on your tax situation?
| Rob | Its a dangerous business going out your front door. - J.R.R.Tolkien

SoAnyway
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Re: Any issues keeping <$1MIL in VMFXX (Money Market Fund)?

Post by SoAnyway » Wed Sep 12, 2018 10:33 pm

OP, maybe I'm just ignorant but I don't understand your question. You asked in your thread title, "Any issues keeping <$1MIL in VMFXX (Money Market Fund)?"My question to you: as opposed to keeping it where? If a mattress, a MMF is likely a better return than zero, for sure. If the near-zero yield in the bank savings account you mentioned in a subsequent post, a MMF is likely to yield a better return but do your research.
Bottom line: It's your money, so it doesn't matter if "I" have "issues". Do you? What are your concerns?
Last edited by SoAnyway on Wed Sep 12, 2018 10:37 pm, edited 1 time in total.

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Re: Any issues keeping <$1MIL in VMFXX (Money Market Fund)?

Post by SoAnyway » Wed Sep 12, 2018 10:36 pm

Duplicate deleted

Thesaints
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Re: Any issues keeping <$1MIL in VMFXX (Money Market Fund)?

Post by Thesaints » Wed Sep 12, 2018 10:43 pm

I guess the OP is referring to protection levels. FDIC for bank accounts, etc...

Peppergrass
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Re: Any issues keeping <$1MIL in VMFXX (Money Market Fund)?

Post by Peppergrass » Wed Sep 12, 2018 11:05 pm

totally get it in there.. it's not making anything right now..

SoAnyway
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Re: Any issues keeping <$1MIL in VMFXX (Money Market Fund)?

Post by SoAnyway » Wed Sep 12, 2018 11:21 pm

Thesaints wrote:
Wed Sep 12, 2018 10:43 pm
I guess the OP is referring to protection levels. FDIC for bank accounts, etc...
Ah. Thanks, TS. Well then, back to my post, it depends on OP's risk tolerance.
Personally, I'd be fine with it, but I'm not OP. And there are plenty of folks who'd never place the funds in anything not FDIC-insured while getting comfortable with investing in equities, 3-fund or otherwise.
So if TS is right, I asked the right question: What are your concerns, OP?

fastrak99
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Re: Any issues keeping <$1MIL in VMFXX (Money Market Fund)?

Post by fastrak99 » Wed Sep 12, 2018 11:33 pm

SoAnyway wrote:
Wed Sep 12, 2018 11:21 pm
Thesaints wrote:
Wed Sep 12, 2018 10:43 pm
I guess the OP is referring to protection levels. FDIC for bank accounts, etc...
Ah. Thanks, TS. Well then, back to my post, it depends on OP's risk tolerance.
Personally, I'd be fine with it, but I'm not OP. And there are plenty of folks who'd never place the funds in anything not FDIC-insured while getting comfortable with investing in equities, 3-fund or otherwise.
So if TS is right, I asked the right question: What are your concerns, OP?
Yes - those are the concerns - protection levels and risk of losing money. I assume both are fairly negligible overall, especially on a short time frame scale - but I'm also at the same time asking what my concerns SHOULD be vs keeping it in the bank? I'm new to investing game and trying to get all my bases covered before doing anything with a larger sum of money.

Any pitfalls with selling the shares a short time later (< 3 months of so)?

fastrak99
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Re: Any issues keeping <$1MIL in VMFXX (Money Market Fund)?

Post by fastrak99 » Wed Sep 12, 2018 11:38 pm

rob wrote:
Wed Sep 12, 2018 10:13 pm
Maybe consider the tax free MM fund instead of Federal - depending on your tax situation?
Thank you - I will consider this as well.

SoAnyway
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Re: Any issues keeping <$1MIL in VMFXX (Money Market Fund)?

Post by SoAnyway » Thu Sep 13, 2018 12:20 am

fastrak99 wrote:
Wed Sep 12, 2018 11:33 pm
Yes - those are the concerns - protection levels and risk of losing money. I assume both are fairly negligible overall, especially on a short time frame scale - but I'm also at the same time asking what my concerns SHOULD be vs keeping it in the bank? I'm new to investing game and trying to get all my bases covered before doing anything with a larger sum of money.

Any pitfalls with selling the shares a short time later (< 3 months of so)?
It sounds like you already know the potential "pitfalls" of FDIC-insured vs. not, OP. Personally, I keep short-term funds in Vanguard Prime Money Market Fund and have for decades. It's never "broken the buck" during my time doing so, so there's been no downside. That doesn't mean there won't ever be - you know, that whole "past results are not indicative of future performance" thing - but I'm comfortable with that level of risk. Personally, I believe the risk is (to use your words) "negligible", but if you're truly concerned, you should stick with your FDIC-insured vehicles, up to $250k per depositor per institution. If you need more info re. the difference between FDIC-insured accounts vs. not, just ask.

RickBoglehead
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Re: Any issues keeping <$1MIL in VMFXX (Money Market Fund)?

Post by RickBoglehead » Thu Sep 13, 2018 4:59 am

Carefully compare Vanguard Federal Money Market with Prime. Prime yields 2.09%, Federal yields 1.94%. Last year, roughly 70% of Federal's return was state tax free, just over 20% of Prime's was.

I choose Prime because I make more. Read the prospectus of both.

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Re: Any issues keeping <$1MIL in VMFXX (Money Market Fund)?

Post by UpperNwGuy » Thu Sep 13, 2018 5:27 am

If your plan is to invest the money in stocks and bonds, then you will be leaving the safety net of FDIC anyway, so why not take the first step now and move it to one of the Vanguard money market accounts? How long do you think it will take you to figure out your investment plan? A few weeks? Longer?
Buy-and-hold retired investor with a 60/40 taxable portfolio: Total Stock + Total Int'l + Total Bond + Interm Term Tax Exempt.

SlowMovingInvestor
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Re: Any issues keeping <$1MIL in VMFXX (Money Market Fund)?

Post by SlowMovingInvestor » Thu Sep 13, 2018 6:14 am

Try VUSXX Vanguard Treasury money market. 1.97% yield, only slightly below VMFXX (2.09%). And state tax free, so effective yield in a high tax state will be higher.

VUSXX should be safer than FDIC accounts.

betablocker
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Re: Any issues keeping <$1MIL in VMFXX (Money Market Fund)?

Post by betablocker » Thu Sep 13, 2018 8:45 am

No issues. If you have a high tax rate look at a muni money market if not look at the treasury as other posters have recommended or prime. All good choices. Money markets are not insured true but the closest they ever came to losing money was during the GFC and the Fed is never going to let that happen. Reality is you are only insured from $250k for each bank account anyway.

fastrak99
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Re: Any issues keeping <$1MIL in VMFXX (Money Market Fund)?

Post by fastrak99 » Thu Sep 13, 2018 11:37 am

Thank you for all the replies and suggestions --

So my next step is to figure out which of these money market funds to purchase - for my specific tax situation. How do I go about figuring that out?

I'm in the highest tax bracket (> $1/MIL income). I reside in Arizona. This will be in a taxable account, held in an limited partnership that I own (for the purpose of investing).

Does something like VUSXX (which is state tax free) make any sense over VMFXX (federal money market fund, is that completely tax free?) in my tax bracket?

AND also - is this where 'capital gains' come in as well - where I have to consider if I'm holding this specific fund for under or over a year to determine my specific tax implications? So If I'm out of any of these money market funds in under 12 months, I will be subjected to my personal income tax bracket on any fund that is non tax free ??

Thesaints
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Re: Any issues keeping <$1MIL in VMFXX (Money Market Fund)?

Post by Thesaints » Thu Sep 13, 2018 2:23 pm

MM funds do not generate capital gains.
As to how to select between federal tax free, or federal and state tax free, you just have to make a simple calculation, keeping in mind AMT may also matter.
Differences between yields are generally not huge, so from time to time the optimal MM fund choice may change. See how much the difference in return is for your investment size and decide whether to bother with exchanges when that happens, or not.

bullsdoc
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Re: Any issues keeping <$1MIL in VMFXX (Money Market Fund)?

Post by bullsdoc » Thu Sep 13, 2018 10:06 pm

Just a quick question if possible, how does one determine which of the above funds are federal versus federal and state tax free? Thanks for any clarification.

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Re: Any issues keeping <$1MIL in VMFXX (Money Market Fund)?

Post by Grt2bOutdoors » Thu Sep 13, 2018 10:15 pm

bullsdoc wrote:
Thu Sep 13, 2018 10:06 pm
Just a quick question if possible, how does one determine which of the above funds are federal versus federal and state tax free? Thanks for any clarification.
State specific municipal money market funds, for which you reside in said state are federal and state tax free. However, if the fund owns or holds AMT/private activity paper, the income derived from those sources is taxable at the federal level.

Money market funds that hold US Treasuries and direct obligations of the US Treasury are state/local tax free. Treasury securities, government agencies and direct obligations of US Treasury however are fully taxable at the federal level.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Re: Any issues keeping <$1MIL in VMFXX (Money Market Fund)?

Post by tfb » Fri Sep 14, 2018 2:17 am

fastrak99 wrote:
Wed Sep 12, 2018 10:00 pm
Going to start my Vanguard journey with $500K-1MIL (3 fund portfolio) - but while I'm waiting to sort out details of allocation I want, etc -- are there any issues or repercussions with keeping that money in VMFXX in the meantime for up to 3 months or so?
While everyone else talked about money market fund, I would suggest putting it in a Target Retirement or LifeStrategy fund that is closer to your final destination. If you think you will end up somewhere between 30% equity and 80% equity, but you are not sure exactly where, maybe go with a fund with 40% equity. It's at least closer to where you will be than 100% money market. Yes you may lose money during the 3 months or however long it takes you to make up your mind, but think whenever you finalize your decision, you may lose money in the following 3 months as well. Waiting will only make you want to time your entries.
Harry Sit, taking a break from the forums.

smectym
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Re: Any issues keeping <$1MIL in VMFXX (Money Market Fund)?

Post by smectym » Fri Sep 14, 2018 11:43 pm

SlowMovingInvestor wrote:
Thu Sep 13, 2018 6:14 am
Try VUSXX Vanguard Treasury money market. 1.97% yield, only slightly below VMFXX (2.09%). And state tax free, so effective yield in a high tax state will be higher.

VUSXX should be safer than FDIC accounts.
Agree with SMI. If OP’s concern is safety Treasury Money Market is the safest, and is not subject to potential gates (blocks on ability to withdraw) or fees (haircuts on withdrawals) in the event of a fresh financial crisis.

Vanguard’s cheat sheet on the new post-2007-08-crisis rules:

https://personal.vanguard.com/pdf/VGMMR.pdf

Smectym

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