Does it bug anyone else that Vanguard only has money market for cash?

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wade22
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Does it bug anyone else that Vanguard only has money market for cash?

Post by wade22 »

I dig Vanguard's funds and interface, I use them for my Roth and was thinking of starting a small taxable account there, but I'm turned off by the fact that money market is the only choice for settlement fund. It probably shouldn't bother me, but it does. My thinking, the only reason I will have cash in an account dedicated to investing in indexes is to a.) Prepare to put money in an index. OR b.) Waiting for sold index funds to settle to transfer to a savings account. A isn't very important because I'm about to expose it to greater fluctuations anyway, but I certainly don't want any fluctuations at point B. It's kind of a longshot worry that only ever amounted to anything in 2008, but I see people talk about these money market accounts like they're universally a great thing, but they're really not for my investing strategy. The way I see it, they give me nothing but risk I don't want. Am I wrong?

I know Fidelity offers a FDIC-insured cash option for both taxable ("cash management account") and retirement accounts, I think Schwab does too.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by Silk McCue »

It doesn’t bug me. It isn’t worth worrying about.

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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by jebmke »

The Federal MM fund is all US Government obligations. What is the risk?
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by Broken Man 1999 »

It doesn't bother me because I keep very little in the settlement fund. Each month I put enough in the settlement fund via sales of individual stocks or dividends to cover my transfer for expenses for the next month. After the transfer I might have $50-$100 left.

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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by Trader Joe »

wade22 wrote: Fri Aug 02, 2019 5:53 pm I dig Vanguard's funds and interface, I use them for my Roth and was thinking of starting a small taxable account there, but I'm turned off by the fact that money market is the only choice for settlement fund. It probably shouldn't bother me, but it does. My thinking, the only reason I will have cash in an account dedicated to investing in indexes is to a.) Prepare to put money in an index. OR b.) Waiting for sold index funds to settle to transfer to a savings account. A isn't very important because I'm about to expose it to greater fluctuations anyway, but I certainly don't want any fluctuations at point B. It's kind of a longshot worry that only ever amounted to anything in 2008, but I see people talk about these money market accounts like they're universally a great thing, but they're really not for my investing strategy. The way I see it, they give me nothing but risk I don't want. Am I wrong?

I know Fidelity offers a FDIC-insured cash option for both taxable ("cash management account") and retirement accounts, I think Schwab does too.
No, not at all. I am very happy with Vanguard Prime Money Market Fund (VMMXX).
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by nisiprius »

Yes, it does. I'd like some kind of "true bank account with automatic sweeps to make it look as if the bank account is part of your brokerage account." It doesn't bug me very much, though.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by livesoft »

wade22 wrote: Fri Aug 02, 2019 5:53 pm The way I see it, they give me nothing but risk I don't want. Am I wrong?
Yes, I think so.

Do you believe that a US Treasury bill needs FDIC insurance?
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by stan1 »

It is very easy to transfer funds from Vanguard to an FDIC bank or NCUA credit union. Try it, you'll see it works very nicely.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by Sandtrap »

I don't mind.
Not worth getting bugged about.

Not too many things bug me. . . except the things that bug me. . . . :shock:

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wade22
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by wade22 »

jebmke wrote: Fri Aug 02, 2019 5:57 pm The Federal MM fund is all US Government obligations. What is the risk?
"Breaking the buck" and all that. I remember reading there were people who lost access to money in MM funds for months to years during the 2008 crisis, though I think the default money market account was invested in riskier things at the time.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by wade22 »

stan1 wrote: Fri Aug 02, 2019 6:12 pm It is very easy to transfer funds from Vanguard to an FDIC bank or NCUA credit union. Try it, you'll see it works very nicely.
I'm pretty sure you have to wait for it to be settled (in the MM fund) to do that. You can limit exposure, but I don't think you can forego it.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by MathWizard »

No. I use Vanguard for things that make me money and are low cost.

I prefer the low cost. If I wanted more features and wanted to pay for them, I have
lots of other places to invest.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by HawkeyePierce »

The wiki has a good article on what caused a small number of MM funds to break the buck in 2008:

https://www.bogleheads.org/wiki/The_200 ... ket_crisis

I would not be at all concerned about this with Vanguard's Federal MM fund since it ultimately has the same backing as the FDIC: the full faith and credit of the US Government. If the Treasury is defaulting on T-Bills there's no reason to believe FDIC-insured deposits are any safer (and we'd all be worried about bigger things than our brokerage accounts anyways at that point).

This fund doesn't invest in any of the commercial paper that caused some funds to break the buck. That paper ("asset-backed commercial paper") was largely used to fund the off-balance-sheet vehicles set up by the big investment banks to warehouse mortgage-backed securities (among other things) while they were securitized and sold off.

The market for that paper froze up and liquidity disappeared during the flight to quality, which meant nobody knew how to value it anymore because there wasn't a market. Nobody wanted the stuff. Eventually the Treasury stepped in to provide liquidity.

Vanguard's Federal MM fund is exactly what funds flew *into* because the T-Bill is the most risk-free financial instrument in the world. :)

(FWIW I currently have a couple tens of thousands parked in this fund for some near-term spending)
Last edited by HawkeyePierce on Fri Aug 02, 2019 6:38 pm, edited 2 times in total.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by stocknoob4111 »

wade22 wrote: Fri Aug 02, 2019 5:53 pm I know Fidelity offers a FDIC-insured cash option for both taxable ("cash management account") and retirement accounts, I think Schwab does too.
Money Market is almost just as good as FDIC insured cash. I am not bothered by the fact that it actually isn't insured because the risk is so negligible it isn't even worth discussing. VMFXX is 85% US government btw.
Last edited by stocknoob4111 on Fri Aug 02, 2019 6:27 pm, edited 2 times in total.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by bhsince87 »

HawkeyePierce wrote: Fri Aug 02, 2019 6:23 pm The wiki has a good article on what caused a small number of MM funds to break the buck in 2008:

https://www.bogleheads.org/wiki/The_200 ... ket_crisis

I would not be at all concerned about this with Vanguard's Federal MM fund since it ultimately has the same backing as the FDIC: the full faith and credit of the US Government. If the Treasury is defaulting on T-Bills there's no reason to believe FDIC-insured deposits are any safer (and we'd all be worried about bigger things than our brokerage accounts anyways at that point).
Wasn't the reason Vanguard switched to the Federal MMF as the clearing fund was to specifically avoid a "breaking the buck" situation?
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by HawkeyePierce »

bhsince87 wrote: Fri Aug 02, 2019 6:25 pm
HawkeyePierce wrote: Fri Aug 02, 2019 6:23 pm The wiki has a good article on what caused a small number of MM funds to break the buck in 2008:

https://www.bogleheads.org/wiki/The_200 ... ket_crisis

I would not be at all concerned about this with Vanguard's Federal MM fund since it ultimately has the same backing as the FDIC: the full faith and credit of the US Government. If the Treasury is defaulting on T-Bills there's no reason to believe FDIC-insured deposits are any safer (and we'd all be worried about bigger things than our brokerage accounts anyways at that point).
Wasn't the reason Vanguard switched to the Federal MMF as the clearing fund was to specifically avoid a "breaking the buck" situation?
Essentially. In the years since the GFC the SEC has implemented new rules that change the treatment of different MM funds based on their composition. "Prime" funds are now allowed to float their share price and also implement redemption gates to prevent runs. Treasury-backed MM funds are not, which is why they're still considered "as good as cash".
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by Big Dog »

what "risk"?

(Even back in 2008, didn't the feds step in and back up the losses, with perhaps the exception of Lehman? In other words, did the masses actually lose money?)

https://www.investopedia.com/articles/m ... k-buck.asp
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by wade22 »

Big Dog wrote: Fri Aug 02, 2019 6:33 pm what "risk"?

(Even back in 2008, didn't the feds step in and back up the losses, with perhaps the exception of Lehman? In other words, did the masses actually lose money?)

https://www.investopedia.com/articles/m ... k-buck.asp
Some discussion of it here: viewtopic.php?p=3605549
There's a forum member within who had money at TD Ameritrade in MM accounts and they froze his money and gave it back to him in disbursements. I guess 90% back in 2 years isn't the end of the world (99% back after 8 years), but definitely an inconvenience to say the least. Maybe something like that is impossible with Vanguard's current fund, but like I said, I gain nothing from having my money pass through it, and if there's no gain, why not have an FDIC-insured account? If crap ever hits the fan again, surely you risk more hassle having cash in a MM account, or at least, I think that's a reasonable guess.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by bhsince87 »

wade22 wrote: Fri Aug 02, 2019 7:28 pm
Big Dog wrote: Fri Aug 02, 2019 6:33 pm what "risk"?

(Even back in 2008, didn't the feds step in and back up the losses, with perhaps the exception of Lehman? In other words, did the masses actually lose money?)

https://www.investopedia.com/articles/m ... k-buck.asp
Some discussion of it here: viewtopic.php?p=3605549
There's a forum member within who had money at TD Ameritrade in MM accounts and they froze his money and gave it back to him in disbursements. I guess 90% back in 2 years isn't the end of the world (99% back after 8 years), but definitely an inconvenience to say the least. Maybe something like that is impossible with Vanguard's current fund, but like I said, I gain nothing from having my money pass through it, and if there's no gain, why not have an FDIC-insured account? If crap ever hits the fan again, surely you risk more hassle having cash in a MM account, or at least, I think that's a reasonable guess.
Currently has a 2.2% SEC yield. I wouldn't call that "no gain".
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by UpperNwGuy »

I think you’re worrying about a non-problem.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by jebmke »

wade22 wrote: Fri Aug 02, 2019 6:15 pm
jebmke wrote: Fri Aug 02, 2019 5:57 pm The Federal MM fund is all US Government obligations. What is the risk?
"Breaking the buck" and all that. I remember reading there were people who lost access to money in MM funds for months to years during the 2008 crisis, though I think the default money market account was invested in riskier things at the time.
Yes, I think those were invested in commercial paper at the time.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by livesoft »

wade22 wrote: Fri Aug 02, 2019 7:28 pmThere's a forum member within who had money at TD Ameritrade in MM accounts and they froze his money and gave it back to him in disbursements....
I do not believe those were TDAmeritrade MM funds, but a non-TDAmeritrade MM fund offered through their funds network. I think it was pretty much the same one single fund that was the problem, but if not, it wasn't any mainstream MM funds that I would have used. That is, the tainted meat didn't spread very far.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by Good Listener »

I think it's the law that certain types of money market funds with government securities be settlement accounts.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by wade22 »

bhsince87 wrote: Fri Aug 02, 2019 7:35 pm Currently has a 2.2% SEC yield. I wouldn't call that "no gain".
If I want money safe and sound in a savings account ASAP, a variable 2% yield for a few days in limbo isn't something I care much about. My savings account has the same return with zero variance.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by increment »

HawkeyePierce wrote: Fri Aug 02, 2019 6:23 pm I would not be at all concerned about this with Vanguard's Federal MM fund since it ultimately has the same backing as the FDIC: the full faith and credit of the US Government. If the Treasury is defaulting on T-Bills there's no reason to believe FDIC-insured deposits are any safer
If you want a Treasury-backed money-market fund, Vanguard offers one. But only around half of the Federal MMF consists of Treasuries. The rest seems to be "repurchase agreements" collateralized by Treasuries (so indirectly backed by the full faith and credit of the US Government) and bonds issued by agencies like "Federal Home Loan Bank" (not backed by the Government's full faith and credit). All that looks pretty safe; however, Treasuries are considered safer.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by jebmke »

wade22 wrote: Fri Aug 02, 2019 8:00 pm
bhsince87 wrote: Fri Aug 02, 2019 7:35 pm Currently has a 2.2% SEC yield. I wouldn't call that "no gain".
If I want money safe and sound in a savings account ASAP, a variable 2% yield for a few days in limbo isn't something I care much about. My savings account has the same return with zero variance.
You started out talking about a cash management account at Fidelity. Now you have switched the discussion to bank savings account. Which is it? It would help if you didn't change the comparison.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by Nate79 »

If you don't like it then use someone like Schwab, an actual bank with FDIC protected settlement funds.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by wade22 »

jebmke wrote: Fri Aug 02, 2019 8:07 pm
wade22 wrote: Fri Aug 02, 2019 8:00 pm
bhsince87 wrote: Fri Aug 02, 2019 7:35 pm Currently has a 2.2% SEC yield. I wouldn't call that "no gain".
If I want money safe and sound in a savings account ASAP, a variable 2% yield for a few days in limbo isn't something I care much about. My savings account has the same return with zero variance.
You started out talking about a cash management account at Fidelity. Now you have switched the discussion to bank savings account. Which is it? It would help if you didn't change the comparison.
You're misunderstanding me. I am saying a MM fund being the settlement fund doesn't offer much to me when I just want to get it safe and sound in a savings account. I don't think that particular Fidelity account offers any interest, but it doesn't matter because it'd just be an FDIC-insured limbo account to my savings.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by bluquark »

Not only does it not bother me, I love it. For the vast majority of brokerages, the settlement account is a profit center for the brokerage. They nickel-and-dime you by denying you a fair interest rate on your cash. As far as I know, Vanguard is the only brokerage that gives you the full treasury bill rate of return. (Fidelity does better than most, but their settlement money markets still charge an ER of 0.42% -- why so high? because you're forced to use it! -- as opposed to Vanguard 0.11%.)

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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by wade22 »

Nate79 wrote: Fri Aug 02, 2019 8:12 pm If you don't like it then use someone like Schwab, an actual bank with FDIC protected settlement funds.
I did mention that at the bottom of my post, leaning Fidelity over Schwab because they offer better ETFs for free. I do have a preference for VTI/VXUS though. I may start my taxable account at Fid/Sch and keep my Roth at Vanguard, haven't decided yet.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by Silk McCue »

wade22 wrote: Fri Aug 02, 2019 8:21 pm
Nate79 wrote: Fri Aug 02, 2019 8:12 pm If you don't like it then use someone like Schwab, an actual bank with FDIC protected settlement funds.
I did mention that at the bottom of my post, leaning Fidelity over Schwab because they offer better ETFs for free. I do have a preference for VTI/VXUS though. I may start my taxable account at Fid/Sch and keep my Roth at Vanguard, haven't decided yet.
Complicating your investing life over this minuscule concern is unwarranted.

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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by Wiggums »

I don’t have any concerns.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by AlohaJoe »

stocknoob4111 wrote: Fri Aug 02, 2019 6:24 pm
wade22 wrote: Fri Aug 02, 2019 5:53 pm I know Fidelity offers a FDIC-insured cash option for both taxable ("cash management account") and retirement accounts, I think Schwab does too.
Money Market is almost just as good as FDIC insured cash. I am not bothered by the fact that it actually isn't insured because the risk is so negligible it isn't even worth discussing. VMFXX is 85% US government btw.
The remaining 15% is essentially US government as well. They are all repurchase agreements collateralized with US Treasuries. The fund is essentially (at least) 99.5% US Treasuries.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by bluquark »

AlohaJoe wrote: Fri Aug 02, 2019 9:23 pm The remaining 15% is essentially US government as well. They are all repurchase agreements collateralized with US Treasuries. The fund is essentially (at least) 99.5% US Treasuries.
I gather that Vanguard's goal with VMFXX is to make the safest possible money market with the constraint of being liquid enough to use as a settlement account. VUSXX, their pure T-Bill money market, is easier to convince yourself of its perfect safety since it's very easy to understand what's in it, but that simplicity (I presume) also forces it to have a $50,000 minimum investment.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by MotoTrojan »

Fidelity's FDIC insured option is what, 0.6% APY? Roughly 3x less than federal money market I'd wager (haven't checked). I use Fidelity's CMA as my core bank account and will never put a dollar into that fund, everything is in SPAXX or SPRXX.

You are worrying about a non-issue.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by Stinky »

Doesn’t bug me.

I’ll take a federal money market fund any day. Anyway, in my case, money never sits there for more than a few days.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by wade22 »

MotoTrojan wrote: Fri Aug 02, 2019 9:41 pm Fidelity's FDIC insured option is what, 0.6% APY? Roughly 3x less than federal money market I'd wager (haven't checked). I use Fidelity's CMA as my core bank account and will never put a dollar into that fund, everything is in SPAXX or SPRXX.

You are worrying about a non-issue.
I'm not sure how they handle IRAs as I don't have one there currently (they do advertise FDIC insurance for them though), but for taxable, I think CMA is the only FDIC insured option. You can use it as a brokerage account. FCASH seems like it would be, but I asked support and it sounds like it's basically a money market account with a bad, set yield, no FDIC insurance on it. Yield isn't my concern though, there's never going to be more than petty cash sitting in it for prolonged periods.

edit: I actually called Fidelity for clarification on FCASH, if anyone is curious. They told me it's classified as a money market account rather than cash for SIPC insurance purposes, which seems kinda like a raw deal as it offers the exact same fixed interest as the FDIC-insured offerings.
Last edited by wade22 on Sat Aug 03, 2019 10:29 am, edited 1 time in total.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by wootwoot »

No worries here, their mm rate is actually pretty good. It beats having money sit in a bank account earning next to nothing.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by vineviz »

wade22 wrote: Fri Aug 02, 2019 6:15 pm
jebmke wrote: Fri Aug 02, 2019 5:57 pm The Federal MM fund is all US Government obligations. What is the risk?
"Breaking the buck" and all that. I remember reading there were people who lost access to money in MM funds for months to years during the 2008 crisis, though I think the default money market account was invested in riskier things at the time.
I’ll concede that you may have actually read that this happened in 2008, but that doesn’t actually mean it happened in 2008 (or ever).
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by JDDS »

It does not bug me. I am comfortable with VMMXX risks, which to me seem small. When it was yielding 0.01% I was more quick to move my money, now I think it is getting a good rate, so I am not worried about cash that might sit there for a bit.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by AlohaJoe »

wade22 wrote: Fri Aug 02, 2019 6:15 pm
jebmke wrote: Fri Aug 02, 2019 5:57 pm The Federal MM fund is all US Government obligations. What is the risk?
"Breaking the buck" and all that. I remember reading there were people who lost access to money in MM funds for months to years during the 2008 crisis,
Within 6 weeks everyone had 50% of their money back. Within 2.5 months everyone had 80% of their money back. Within 6 months everyone had 90% of their money back. Within 18 months everyone had 99% of their money back. I believe the remaining 0.5% took a few years.

But none of that had anything to do with a Federal money market, so I don't see why it is relevant. The Primary Fund had problems because they carried $700 million of paper from Lehman Brothers that went from $700 million to $0 overnight. (And even then, it is worth pointing out, the fund only dropped from $1 to $0.97. It isn't like they lost everything.) Pretending all money market funds are the same is like pretending that all equity mutual funds are the same. It doesn't seem like a very useful starting position for thinking about one's investments. Funds are required to provide a prospectus and reports of holdings for a reason.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by welderwannabe »

HawkeyePierce wrote: Fri Aug 02, 2019 6:30 pm Essentially. In the years since the GFC the SEC has implemented new rules that change the treatment of different MM funds based on their composition. "Prime" funds are now allowed to float their share price and also implement redemption gates to prevent runs. Treasury-backed MM funds are not, which is why they're still considered "as good as cash".
Not to nit pick, but I want to make a correction. Money markets have always been allowed to float their share price. That is nothing new. In fact a fixed NAV is desirable so you dont have to track capital gains/losses on sales every time you write a check. What changed is that for them to be allowed to continue to have a non floating (aka fixed) share price they can no longer be offered to anyone other than retail investors (not businesses, not institutions etc) UNLESS they invest solely in government debt. They basically carved fixed money markets up into "government", "retail", and "floating" categories.

Government funds: Invests exclusively in federal govt debt (including agency debt and the like). Is not required to feature redemption gates and fees, but MAY feature them at the discretion of the fund. Can be offered to natural persons, businesses, institutions, etc.

Retail funds: Invests in other than federal govt debt. Must feature redemption gates and fees that kick in if liquidity targets fall below a certain threshold. Can only be offered to natural persons and not businesses, institutions, etc.

Floating nav funds: Can be offered to anyone and does not require any of the above. In practice, most brokerages restrict them to institutions but this is not a requirement. If you are interested in a floating NAV MM, ETFs like ICSH, SHV, and BIL are really close to that and you can just invest in those.
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Sidney
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by Sidney »

wade22 wrote: Fri Aug 02, 2019 11:19 pm I'm not sure how they handle IRAs as I don't have one there currently (they do advertise FDIC insurance for them though), but for taxable, I think CMA is the only FDIC insured option. You can use it as a brokerage account. FCASH seems like it would be, but I asked support and it sounds like it's basically a money market account with a bad, set yield, no FDIC insurance on it. Yield isn't my concern though, there's never going to be more than petty cash sitting in it for prolonged periods.
In my opinion, the security of FDIC insurance is ultimately the backing of the Federal government. From a practical standpoint it is no more safe than US government securities. If the money market is holding government securities, this is as safe as bank accounts.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by gd »

Had some dealings with Morgan Stanley thrust upon me the last year, and long story short, they wouldn't LET me set up a MMF for sweeps. Everything went into a Bank Reserve fund, and if I wanted cash in MMFs, I had to call them up and request purchase of the MMF from Bank Reserves. So no, I'm fine with Vanguard.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by AlohaJoe »

Sidney wrote: Sat Aug 03, 2019 6:56 am
wade22 wrote: Fri Aug 02, 2019 11:19 pm I'm not sure how they handle IRAs as I don't have one there currently (they do advertise FDIC insurance for them though), but for taxable, I think CMA is the only FDIC insured option. You can use it as a brokerage account. FCASH seems like it would be, but I asked support and it sounds like it's basically a money market account with a bad, set yield, no FDIC insurance on it. Yield isn't my concern though, there's never going to be more than petty cash sitting in it for prolonged periods.
In my opinion, the security of FDIC insurance is ultimately the backing of the Federal government. From a practical standpoint it is no more safe than US government securities. If the money market is holding government securities, this is as safe as bank accounts.
Government securities are clearly more safe than FDIC. There is no actual law, regulation, or process in place to actually backstop FDIC when it runs out of the small amount of money it has. Right now it has $97 billion to guarantee all the bank accounts in America. The Lehman Brothers collapse was $700 billion, so the FDIC can't even cover 15% of a Lehman-sized collapse. Wells Fargo alone has $1.3 trillion in deposits. FDIC insurance can only cover 8% of Wells Fargo.

Everyone just assumes that if something bad happens, Congress will get together and quickly pass a new law that does.... something, even though nothing actually requires them to do that.

By contrast, it is very clear how Treasuries work and how they represent the full faith and credit of the United States.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by NYCguy »

AlohaJoe wrote: Sat Aug 03, 2019 7:06 am
Sidney wrote: Sat Aug 03, 2019 6:56 am
wade22 wrote: Fri Aug 02, 2019 11:19 pm I'm not sure how they handle IRAs as I don't have one there currently (they do advertise FDIC insurance for them though), but for taxable, I think CMA is the only FDIC insured option. You can use it as a brokerage account. FCASH seems like it would be, but I asked support and it sounds like it's basically a money market account with a bad, set yield, no FDIC insurance on it. Yield isn't my concern though, there's never going to be more than petty cash sitting in it for prolonged periods.
In my opinion, the security of FDIC insurance is ultimately the backing of the Federal government. From a practical standpoint it is no more safe than US government securities. If the money market is holding government securities, this is as safe as bank accounts.
Government securities are clearly more safe than FDIC. There is no actual law, regulation, or process in place to actually backstop FDIC when it runs out of the small amount of money it has. Right now it has $97 billion to guarantee all the bank accounts in America. The Lehman Brothers collapse was $700 billion, so the FDIC can't even cover 15% of a Lehman-sized collapse. Wells Fargo alone has $1.3 trillion in deposits. FDIC insurance can only cover 8% of Wells Fargo.

Everyone just assumes that if something bad happens, Congress will get together and quickly pass a new law that does.... something, even though nothing actually requires them to do that.

By contrast, it is very clear how Treasuries work and how they represent the full faith and credit of the United States.
+1

I’m slightly bugged the other direction. I would;d like to use a NY money market as my Vanguard sweep. I have a deep understanding of what it takes to break the buck and am happy to assume the remote risk.

In 2007-2008 I had a seven figure money market position (having nothing to do with market timing) and started using treasury MM for a few months. In normal markets breaking the buck is a theoretical risk for a shop like Vanguard and probably many other large shops.
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welderwannabe
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by welderwannabe »

AlohaJoe wrote: Sat Aug 03, 2019 7:06 am Government securities are clearly more safe than FDIC. There is no actual law, regulation, or process in place to actually backstop FDIC when it runs out of the small amount of money it has. Right now it has $97 billion to guarantee all the bank accounts in America. The Lehman Brothers collapse was $700 billion, so the FDIC can't even cover 15% of a Lehman-sized collapse. Wells Fargo alone has $1.3 trillion in deposits. FDIC insurance can only cover 8% of Wells Fargo.

Everyone just assumes that if something bad happens, Congress will get together and quickly pass a new law that does.... something, even though nothing actually requires them to do that.

By contrast, it is very clear how Treasuries work and how they represent the full faith and credit of the United States.
FDIC does have lines of credit with the Treasury (last I knew it was $100B, but it may have been raised). They did not tap it in 2008/2009, but did sometime in the 90's. While your statement is technically correct, I think the risk is slim to none of the treasury and/or federal reserve not backstopping the FDIC.

However, that ship has probably sailed for non-government money markets.

I keep most of my cash in Treasury MM's and individual bills (to reduce the counterparty risk of even the Treasury MM). However I have and do continue to use some Prime MM's and they don't keep me up at night.
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JoMoney
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by JoMoney »

If not for the FDIC backing a bank account would be more risky than a money market that actually holds marketable liquid assets. Banks have access to the Fed and interbank lending markets, so they don't necessarily need their holdings to be liquid, but it does present risks that are different than what money markets have.
It doesn't bug me, it's what I expect for a brokerage account. It does bug me that Vanguard no longer offers non-brokerage directly held mutual fund only accounts. I probably wouldn't miss it if they had never offered it, but they did, and now I do....
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by AlohaJoe »

welderwannabe wrote: Sat Aug 03, 2019 7:58 am
AlohaJoe wrote: Sat Aug 03, 2019 7:06 am Government securities are clearly more safe than FDIC. There is no actual law, regulation, or process in place to actually backstop FDIC when it runs out of the small amount of money it has. Right now it has $97 billion to guarantee all the bank accounts in America. The Lehman Brothers collapse was $700 billion, so the FDIC can't even cover 15% of a Lehman-sized collapse. Wells Fargo alone has $1.3 trillion in deposits. FDIC insurance can only cover 8% of Wells Fargo.

Everyone just assumes that if something bad happens, Congress will get together and quickly pass a new law that does.... something, even though nothing actually requires them to do that.

By contrast, it is very clear how Treasuries work and how they represent the full faith and credit of the United States.
FDIC does have lines of credit with the Treasury (last I knew it was $100B, but it may have been raised). They did not tap it in 2008/2009, but did sometime in the 90's. While your statement is technically correct, I think the risk is slim to none of the treasury and/or federal reserve not backstopping the FDIC.
True, I didn't mean to give the impression that FDIC is risky. Just that it is clearly riskier than plain Treasuries, though we're talking about very fine gradations here. Just trying to point out that "FDIC" isn't some magic spell. It is just a government bureaucracy trying to work within an imperfect legislative world.

Also, IIRC the FDIC did run out of money in 2008. They just told members to prepay a few years of premiums to make up the shortfall. I think it was a $20-30 billion shortfall.
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wade22
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by wade22 »

Even though a current-day MM account might be exposed to similar or less risks on paper, it seems it's still susceptible to temporarily losing value in times of turmoil with no guarantee backing it's short-term value. When it comes down to it, why would I want a non-insured limbo account when it's possible to have an insured one? For a few days of low, variable yield when I just want the money out of dodge? There are pros to a money market account, but they don't apply much to my investing proclivities.
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