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

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

Post by NYCguy »

wade22 wrote: Sat Aug 03, 2019 9:01 am 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.
Because as others noted above, Fed MM may actually be safer than FDIC insurance. If this ever becomes a relevant question, we will all have much bigger problems.

If this is what is giving you pause over Vanguard, I suggest this is the tail waging the dog. If this really bothers you move your money out of the sweep account to a bank. It is a PITA but that’s what I do to put short term money in the NY MM account.
If your out-go is greater than your income, your upkeep will be your DOWNFALL.
scubadiver
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by scubadiver »

No, the Vanguard money market accounts do not concern me.
Silk McCue
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by Silk McCue »

wade22 wrote: Sat Aug 03, 2019 9:01 am 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.
You seem to want to be concerned about what most responders here have no significant concern over. The risk is minuscule but your perception of the risk seems to magnify it’s very possibility.

Did the market downturn last fall and more recently cause you as much concern? How does a one day drop of $20k in value of your investment holdings make you feel? How do you react when that happens and how are you able to stay the course in turbulent times?

Cheers
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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 »

NYCguy wrote: Sat Aug 03, 2019 11:20 am Because as others noted above, Fed MM may actually be safer than FDIC insurance. If this ever becomes a relevant question, we will all have much bigger problems.
I disagree with this. FDIC insurance not coming through would require apocalyptic conditions, the MM having hiccups, not so much, just a pervasive level of angst.
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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 »

Silk McCue wrote: Sat Aug 03, 2019 12:14 pm You seem to want to be concerned about what most responders here have no significant concern over. The risk is minuscule but your perception of the risk seems to magnify it’s very possibility.

Did the market downturn last fall and more recently cause you as much concern? How does a one day drop of $20k in value of your investment holdings make you feel? How do you react when that happens and how are you able to stay the course in turbulent times?

Cheers
I don't actually pay any attention to my index funds, for the most part. They're too boring to get excited or let down by. (I wasn't in the market in 2008 though.) Now, individual stocks I have a problem with. I don't do those anymore. I could buy Amazon and a -2% day will have me questioning whether I bought the next Radioshack.
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ruralavalon
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by ruralavalon »

It does not bother me at all. Vanguard Money Market funds have good yields, and we do not use a cash a!location.

Money is in a settlement fund just a few days in your case. Find something else to be concerned about.
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Silk McCue
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by Silk McCue »

wade22 wrote: Sat Aug 03, 2019 1:14 pm I don't actually pay any attention to my index funds, for the most part. They're too boring to get excited or let down by. (I wasn't in the market in 2008 though.) Now, individual stocks I have a problem with. I don't do those anymore. I could buy Amazon and a -2% day will have me questioning whether I bought the next Radioshack.
Great.

However, it is your comfort with this well reasoned decision to utilize a low cost broadly diversified portfolio for your long term financial needs with its well known machinations that may result in extended periods of decline contrasted with your extreme aversion to the very minor risk of a MM fund breaking the buck to such an extent that you would consider placing those funds at another brokerage that has me at a loss. (Really long sentence on an iPad and don’t want to fix).

Can you explain the comfort with one and the extreme aversion to the other?

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

Post by NYCguy »

wade22 wrote: Sat Aug 03, 2019 1:03 pm
NYCguy wrote: Sat Aug 03, 2019 11:20 am Because as others noted above, Fed MM may actually be safer than FDIC insurance. If this ever becomes a relevant question, we will all have much bigger problems.
I disagree with this. FDIC insurance not coming through would require apocalyptic conditions, the MM having hiccups, not so much, just a pervasive level of angst.
We have no disagreement. T Bulls are short term instruments back by the full faith and credit of the United States government. Apocalyptic conditions are required for either one not to pay. With in an apocalypse I can come up with arguments why either one might be more likely to pay than the other, but at that point we will all have much bigger problems.

When the Reserve Fund broke the buck in 2008 it was holding Lehman Brothers securities, not T-bills.
If your out-go is greater than your income, your upkeep will be your DOWNFALL.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by hudson »

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?
If you are right or wrong doesn't' matter, it's what you want.

It's a great discussion! All of this never occured to me. After reading everything and reading the specs below, I'm OK. I always thought that VMFXX had a good reputation...this discussion confirms that.

I'm not sure that I knew that it was paying out 2.27%. It's Vanguard Risk Potential 1.
It looks like the holdings are:
Repurchase Agreements: 21.8%
US Govt Obligations: 54.3%
US Treasury Bills 23.9%

The fund holds about $129 billion.

I usually check my 3 settlement funds daily. If there's much in there, I'll move it into a fund or ETF.
If I'm going to need cash during the month, I'll leave it in the settlement fund and move it to my bank 2-3 days before I need it. My settlement funds have low balances. Today, I have a total of $6.32 in 3 settlement funds.
Wakefield1
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by Wakefield1 »

Did any of Vanguard's Money Market Funds have any problem in 2008 ? I don't think so
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by bhsince87 »

NYCguy wrote: Sat Aug 03, 2019 11:20 am

If this is what is giving you pause over Vanguard, I suggest this is the tail waging the dog. If this really bothers you move your money out of the sweep account to a bank. It is a PITA but that’s what I do to put short term money in the NY MM account.
Why do you say this is a PITA? I can move money from my clearing fund into the PA MM fund (where I live) instantly, with maybe 4 mouse clicks.

I can also move it out of Vanguard to my bank accounts with maybe 6 mouse clicks. But I do have to wait a day or two for the transfer.
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Phineas J. Whoopee
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by Phineas J. Whoopee »

It bugs me not at all, but that's because I understand money market mutual funds, money market bank accounts, bank savings accounts, and their close correlates. I know enough to choose what suits my needs.

OP: you've been given a lot of good advice. If a money market mutual fund feels uncomfortable, and you understand them, it's a sign you should use some other vehicle, like a bank savings account. Doing so won't harm your long-term finances.

With respect to a settlement fund in a brokerage account, nobody needs to keep very much in one if they don't want to.

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

Post by sarabayo »

welderwannabe wrote: Sat Aug 03, 2019 6:24 am
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.
Thanks for this very helpful summary.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by HawkeyePierce »

welderwannabe wrote: Sat Aug 03, 2019 6:24 am
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.
Thank you for the clarification!
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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 »

Silk McCue wrote: Sat Aug 03, 2019 2:09 pm However, it is your comfort with this well reasoned decision to utilize a low cost broadly diversified portfolio for your long term financial needs with its well known machinations that may result in extended periods of decline contrasted with your extreme aversion to the very minor risk of a MM fund breaking the buck to such an extent that you would consider placing those funds at another brokerage that has me at a loss. (Really long sentence on an iPad and don’t want to fix).

Can you explain the comfort with one and the extreme aversion to the other?

Cheers
Same as if I was picking individual stocks, I like to think about what could go wrong. It likely would never affect me, but I think it gives me unnecessary risk I don't want exposure to, small as it may be. I view an index fund as a necessary risk, this isn't. And it sounds like it's pretty easy to transfer a Roth, Fidelity told me they even bring over basis costs and whatnot, so I won't even have to go back for documentation purposes.
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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 »

NYCguy wrote: Sat Aug 03, 2019 2:11 pm
wade22 wrote: Sat Aug 03, 2019 1:03 pm
NYCguy wrote: Sat Aug 03, 2019 11:20 am Because as others noted above, Fed MM may actually be safer than FDIC insurance. If this ever becomes a relevant question, we will all have much bigger problems.
I disagree with this. FDIC insurance not coming through would require apocalyptic conditions, the MM having hiccups, not so much, just a pervasive level of angst.
We have no disagreement. T Bulls are short term instruments back by the full faith and credit of the United States government. Apocalyptic conditions are required for either one not to pay. With in an apocalypse I can come up with arguments why either one might be more likely to pay than the other, but at that point we will all have much bigger problems.

When the Reserve Fund broke the buck in 2008 it was holding Lehman Brothers securities, not T-bills.
Even with the very safe holdings, my understanding is that a large influx of withdrawals from Federal Money Market all at once could still cause it to break the buck, which doesn't necessarily require apocalyptic conditions, just the perception of them.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by finite_difference »

wade22 wrote: Sat Aug 03, 2019 6:23 pm
NYCguy wrote: Sat Aug 03, 2019 2:11 pm
wade22 wrote: Sat Aug 03, 2019 1:03 pm
NYCguy wrote: Sat Aug 03, 2019 11:20 am Because as others noted above, Fed MM may actually be safer than FDIC insurance. If this ever becomes a relevant question, we will all have much bigger problems.
I disagree with this. FDIC insurance not coming through would require apocalyptic conditions, the MM having hiccups, not so much, just a pervasive level of angst.
We have no disagreement. T Bulls are short term instruments back by the full faith and credit of the United States government. Apocalyptic conditions are required for either one not to pay. With in an apocalypse I can come up with arguments why either one might be more likely to pay than the other, but at that point we will all have much bigger problems.

When the Reserve Fund broke the buck in 2008 it was holding Lehman Brothers securities, not T-bills.
Even with the very safe holdings, my understanding is that a large influx of withdrawals from Federal Money Market all at once could still cause it to break the buck, which doesn't necessarily require apocalyptic conditions, just the perception of them.
Why don’t you just transfer to your bank? That’s free and takes only a few days. I am having a hard time understanding the issue here. Can you outline an example scenario?

I actually do the opposite and keep money in VMMXX instead of the bank. But there’s enough in the bank to deal with a temporary “glitch”.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by Northern Flicker »

increment wrote: Fri Aug 02, 2019 8:02 pm
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.
Repurchase agreements collateralized by t-bills are as safe as t-bills. Agency debt would be considered slightly less safe. The treasury MMF is very slightly safer than an FDIC-insured bank account in my view, but it has a $50K minimum. The Federal MMF is only slightly less safe. The Prime MMF takes more credit risk and would be the least safe of the three. It also has the highest expense ratio due to the very high minimum for admiral shares.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by LISD »

hudson wrote: Sat Aug 03, 2019 2:16 pm
I'm not sure that I knew that it was paying out 2.27%.
It looks like the holdings are:
Repurchase Agreements: 21.8%
US Govt Obligations: 54.3%
US Treasury Bills 23.9%

Since a good portion of the fund is invested in treasuries, then is a portion of the income state tax free?
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by welderwannabe »

Northern Flicker wrote: Sun Aug 04, 2019 12:02 am
Repurchase agreements collateralized by t-bills are as safe as t-bills.
No they arent.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by welderwannabe »

wade22 wrote: Sat Aug 03, 2019 1:03 pm I disagree with this. FDIC insurance not coming through would require apocalyptic conditions, the MM having hiccups, not so much, just a pervasive level of angst
What u describe is a run on a money market. The very same thing destroys banks too.

Also many dont know this but all savings accounts have redemption gates built into them. It's a requirement of the fed. Same with many interest bearing checking accounts including the ones offered at Ally, a forum favorite.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.
NYCguy
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by NYCguy »

wade22 wrote: Sat Aug 03, 2019 6:23 pm
NYCguy wrote: Sat Aug 03, 2019 2:11 pm
wade22 wrote: Sat Aug 03, 2019 1:03 pm
NYCguy wrote: Sat Aug 03, 2019 11:20 am Because as others noted above, Fed MM may actually be safer than FDIC insurance. If this ever becomes a relevant question, we will all have much bigger problems.
I disagree with this. FDIC insurance not coming through would require apocalyptic conditions, the MM having hiccups, not so much, just a pervasive level of angst.
We have no disagreement. T Bulls are short term instruments back by the full faith and credit of the United States government. Apocalyptic conditions are required for either one not to pay. With in an apocalypse I can come up with arguments why either one might be more likely to pay than the other, but at that point we will all have much bigger problems.

When the Reserve Fund broke the buck in 2008 it was holding Lehman Brothers securities, not T-bills.
Even with the very safe holdings, my understanding is that a large influx of withdrawals from Federal Money Market all at once could still cause it to break the buck, which doesn't necessarily require apocalyptic conditions, just the perception of them.
The T Bill market is highly liquid and if it is unavailable to meet redemptions we have apocalyptic conditions. Likewise for the short end of the yield curve. If it goes negative, the end is here.
If your out-go is greater than your income, your upkeep will be your DOWNFALL.
NYCguy
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by NYCguy »

welderwannabe wrote: Sun Aug 04, 2019 6:54 am
Northern Flicker wrote: Sun Aug 04, 2019 12:02 am
Repurchase agreements collateralized by t-bills are as safe as t-bills.
No they arent.
The repos are of the same type government securities. There is highly theoretical settlement risk. If that corner of the repo market fails, the end is here but even in that scenario the Fed MM is as or more likely to pay and be liquid IMHO. As others have noted the FDIC will gate withdrawals. if either break the buck, we are toast.
If your out-go is greater than your income, your upkeep will be your DOWNFALL.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by NYCguy »

bhsince87 wrote: Sat Aug 03, 2019 3:58 pm
NYCguy wrote: Sat Aug 03, 2019 11:20 am

If this is what is giving you pause over Vanguard, I suggest this is the tail waging the dog. If this really bothers you move your money out of the sweep account to a bank. It is a PITA but that’s what I do to put short term money in the NY MM account.
Why do you say this is a PITA? I can move money from my clearing fund into the PA MM fund (where I live) instantly, with maybe 4 mouse clicks.

I can also move it out of Vanguard to my bank accounts with maybe 6 mouse clicks. But I do have to wait a day or two for the transfer.
I have large sums coming in and out of the settlement account several times a month. I would rather it settle in any account a choose and let me decide my risk profile. It is PITA to monitor and move that frequently.
If your out-go is greater than your income, your upkeep will be your DOWNFALL.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by UpperNwGuy »

NYCguy wrote: Sun Aug 04, 2019 8:30 am
bhsince87 wrote: Sat Aug 03, 2019 3:58 pm
NYCguy wrote: Sat Aug 03, 2019 11:20 am

If this is what is giving you pause over Vanguard, I suggest this is the tail waging the dog. If this really bothers you move your money out of the sweep account to a bank. It is a PITA but that’s what I do to put short term money in the NY MM account.
Why do you say this is a PITA? I can move money from my clearing fund into the PA MM fund (where I live) instantly, with maybe 4 mouse clicks.

I can also move it out of Vanguard to my bank accounts with maybe 6 mouse clicks. But I do have to wait a day or two for the transfer.
I have large sums coming in and out of the settlement account several times a month. I would rather it settle in any account a choose and let me decide my risk profile. It is PITA to monitor and move that frequently.
Sounds like a first world problem to me.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by ruralavalon »

UpperNwGuy wrote: Sun Aug 04, 2019 9:22 am
NYCguy wrote: Sun Aug 04, 2019 8:30 am
bhsince87 wrote: Sat Aug 03, 2019 3:58 pm
NYCguy wrote: Sat Aug 03, 2019 11:20 am

If this is what is giving you pause over Vanguard, I suggest this is the tail waging the dog. If this really bothers you move your money out of the sweep account to a bank. It is a PITA but that’s what I do to put short term money in the NY MM account.
Why do you say this is a PITA? I can move money from my clearing fund into the PA MM fund (where I live) instantly, with maybe 4 mouse clicks.

I can also move it out of Vanguard to my bank accounts with maybe 6 mouse clicks. But I do have to wait a day or two for the transfer.
I have large sums coming in and out of the settlement account several times a month. I would rather it settle in any account a choose and let me decide my risk profile. It is PITA to monitor and move that frequently.
Sounds like a first world problem to me.
Sounds like not a problem to me.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by tibbitts »

It doesn't bother me. At Fidelity, with less than a dollar in my settlement account, I haven't taken the time to investigate interest rates, but are there any FDIC options that pay as much as the available money market settlement accounts? If I had significant enough money in the settlement account to worry about money market losses, interest/dividend rates would be a consideration.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by UpperNwGuy »

I am astonished that so many people on this forum want their money to be in FDIC-insured accounts when there are so many Treasury money market funds available in the same brokerages where they do their investing. Under what scenarios would a Treasury money market fund fail but an FDIC-insured account not?
Last edited by UpperNwGuy on Sun Aug 04, 2019 10:27 am, edited 1 time in total.
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J G Bankerton
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by J G Bankerton »

bhsince87 wrote: Fri Aug 02, 2019 6:25 pm Wasn't the reason Vanguard switched to the Federal MMF as the clearing fund was to specifically avoid a "breaking the buck" situation?
There is a regulation that requires settlement funds to be in government securities. Back when some MM broke the buck the federal government stepped in and FDIC insured them, they are too big to fail.

Transferring from a bank to Vanguard takes time. When the market is in free-fall I don't have time to wait to buy. Vanguard does let me buy with my bank money but puts holds on my account. The extra income from a MM is worth the "risk" to me. :greedy
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by SGM »

I have no problem with Vanguard's MM accounts. Through another brokerage we had some trouble with very short term state specific muni bonds in 2008, but we were made whole. It was a minor annoyance because we were going to buy a vacation house that had dropped precipitously in price. We worked it out. I tend not to worry about things. I accept small risks. The stock market is a greater risk so I dialed it back a little in retirement, but not completely.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by welderwannabe »

J G Bankerton wrote: Sun Aug 04, 2019 10:20 am There is a regulation that requires settlement funds to be in government securities.
I keep seeing this repeated but have never been able to find this regulation to confirm. I actually believe this is false. My belief is that brokerages didn't want to have to deal with the complexities of having a settlement fund option that could only be offered to natural persons and that could be subject to liquidity gates and or fees. However I dont believe it's a govt requirement. If you have hard documentation to the contrary please share.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by welderwannabe »

NYCguy wrote: Sun Aug 04, 2019 8:26 am The repos are of the same type government securities. There is highly theoretical settlement risk. If that corner of the repo market fails, the end is here but even in that scenario the Fed MM is as or more likely to pay and be liquid IMHO. As others have noted the FDIC will gate withdrawals. if either break the buck, we are toast.
The risk is more then theoretical. The credit worthiness of the borrower needs to be front and center. The collateral is often not even transferred to the lender due to the costs involved, possibly leaving you in line with other creditors if the borrower defaults. So while the collateral itself is solid you may not be entitled to all of it if the borrower defaults. In addition longer dates treasuries are often used as collateral and there may be interest rate risk involved. So while a repo collateralized with a treasury is less risky than unsecured commercial paper, calling it as risk free as owning a treasury bill outright just isn't even close to correct.

Here is a little snippet from the icma.
Careful selection of counterparties is vital to the performance of repo. Collateralisation does not change the probability of default of a counterparty, so collateral taken from risky counterparties is more likely to be tested by a default and may turn out to be worth less than expected due to fluctuations in price, the impact of liquidation, and possible legal and operational problems. Consequently, collateral should be treated only as insurance against the default of the seller, not as a simple substitute for his credit risk. This means that the primary exposure in a repo remains counterparty credit risk. Repo does not therefore avoid the need for conventional credit risk management and does not allow lending to parties deemed unsuitable for unsecured lending. Rather, repo is intended to reduce the risk of lending to existing counterparties in order to make more efficient use of the capital supporting such lending.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by J G Bankerton »

welderwannabe wrote: Sun Aug 04, 2019 1:09 pm
J G Bankerton wrote: Sun Aug 04, 2019 10:20 am There is a regulation that requires settlement funds to be in government securities.
I keep seeing this repeated but have never been able to find this regulation to confirm.
I misspoke; there is no requirement to hold government securities but the SEC rules make it advantageous to do so.

After further review, on July 23, 2014, the Commission adopted more fundamental structural changes to the regulations of money market funds. These reforms require prime institutional money market funds to “float their NAV” (no longer maintain a stable price) and provide non-government money market fund boards with new tools — liquidity fees and redemption gates — to address runs. These changes took effect on October 14, 2016.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by NYCguy »

welderwannabe wrote: Sun Aug 04, 2019 1:17 pm
NYCguy wrote: Sun Aug 04, 2019 8:26 am The repos are of the same type government securities. There is highly theoretical settlement risk. If that corner of the repo market fails, the end is here but even in that scenario the Fed MM is as or more likely to pay and be liquid IMHO. As others have noted the FDIC will gate withdrawals. if either break the buck, we are toast.
The risk is more then theoretical. The credit worthiness of the borrower needs to be front and center. The collateral is often not even transferred to the lender due to the costs involved, possibly leaving you in line with other creditors if the borrower defaults. So while the collateral itself is solid you may not be entitled to all of it if the borrower defaults. In addition longer dates treasuries are often used as collateral and there may be interest rate risk involved. So while a repo collateralized with a treasury is less risky than unsecured commercial paper, calling it as risk free as owning a treasury bill outright just isn't even close to correct.

Here is a little snippet from the icma.
Careful selection of counterparties is vital to the performance of repo. Collateralisation does not change the probability of default of a counterparty, so collateral taken from risky counterparties is more likely to be tested by a default and may turn out to be worth less than expected due to fluctuations in price, the impact of liquidation, and possible legal and operational problems. Consequently, collateral should be treated only as insurance against the default of the seller, not as a simple substitute for his credit risk. This means that the primary exposure in a repo remains counterparty credit risk. Repo does not therefore avoid the need for conventional credit risk management and does not allow lending to parties deemed unsuitable for unsecured lending. Rather, repo is intended to reduce the risk of lending to existing counterparties in order to make more efficient use of the capital supporting such lending.
Yes, both counterparty risk and structure of repos are critical but when done properly those risks can be virtually eliminated. Based on my limited visibility in to Vanguard’s repo operations, I am not concerned. They are among the most prudent on the street.

Repo collateral is usually held in the name of third-party custodians. Settlements of repos even in the case of counterparty failures like Bear Stearns, Lehman, MF Global etc. have gone smoothly. There are special rules under the bankruptcy code and SIPA that permit the immediate settlement of repos so they do not get caught up in litigation.

Settling with the FDIC for a failed bank in contrast can be measured weeks and months.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by S_Track »

LISD wrote: Sun Aug 04, 2019 12:45 am
hudson wrote: Sat Aug 03, 2019 2:16 pm
I'm not sure that I knew that it was paying out 2.27%.
It looks like the holdings are:
Repurchase Agreements: 21.8%
US Govt Obligations: 54.3%
US Treasury Bills 23.9%

Since a good portion of the fund is invested in treasuries, then is a portion of the income state tax free?
It seems so, see link:

https://personal.vanguard.com/pdf/USGO_012019.pdf
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by Northern Flicker »

welderwannabe wrote: Sun Aug 04, 2019 6:54 am
Northern Flicker wrote: Sun Aug 04, 2019 12:02 am
Repurchase agreements collateralized by t-bills are as safe as t-bills.
No they arent.
Perhaps you can explain why? Repos backed by t-bills are held by money funds that are described as 100% backed by the full faith and credit of the US treasury.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by Northern Flicker »

Because as others noted above, Fed MM may actually be safer than FDIC insurance.
I think the Federal MMF is slightly less safe than an FDIC-insured account.
If this ever becomes a relevant question, we will all have much bigger problems.
I will also mention that I view this logic (which I often see given for safe, but not the very safest investments) that if investment X fails, we all have bigger problems as being logically backwards. If and when we all have bigger problems is precisely when you most do not want the problems made worse by holding cash in an account that is neither federally insured (by FDIC or NCUA) nor backed by the full faith and credit of the US treasury.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by J G Bankerton »

Northern Flicker wrote: Sun Aug 04, 2019 10:18 pm I will also mention that I view this logic (which I often see given for safe, but not the very safest investments) that if investment X fails, we all have bigger problems as being logically backwards.
If the federal government defaults on its loans what good do you think FDIC insurance will be?
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by welderwannabe »

Northern Flicker wrote: Sun Aug 04, 2019 10:06 pm
welderwannabe wrote: Sun Aug 04, 2019 6:54 am
Northern Flicker wrote: Sun Aug 04, 2019 12:02 am
Repurchase agreements collateralized by t-bills are as safe as t-bills.
No they arent.
Perhaps you can explain why? Repos backed by t-bills are held by money funds that are described as 100% backed by the full faith and credit of the US treasury.
Read my above post
I am not an investment professional, but I did stay at a Holiday Inn Express last night.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by Northern Flicker »

welderwannabe wrote: Sun Aug 04, 2019 11:05 pm
Northern Flicker wrote: Sun Aug 04, 2019 10:06 pm
welderwannabe wrote: Sun Aug 04, 2019 6:54 am
Northern Flicker wrote: Sun Aug 04, 2019 12:02 am
Repurchase agreements collateralized by t-bills are as safe as t-bills.
No they arent.
Perhaps you can explain why? Repos backed by t-bills are held by money funds that are described as 100% backed by the full faith and credit of the US treasury.
Read my above post
Yes. It includes text that applies to repos in general, including ones collateralized by instruments of less credit quality than t-bills:
Collateralisation does not change the probability of default of a counterparty, so collateral taken from risky counterparties is more likely to be tested by a default and may turn out to be worth less than expected due to fluctuations in price, the impact of liquidation, and possible legal and operational problems.
The SEC would not let a mutual fund company advertise that 100% of the investments are backed by the full faith and credit of the US treasury unless it were true.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by sarabayo »

Northern Flicker wrote: Wed Aug 07, 2019 1:41 pm The SEC would not let a mutual fund company advertise that 100% of the investments are backed by the full faith and credit of the US treasury unless it were true.
Maybe I'm misunderstanding you, but I should say that Vanguard makes no such claim about VMFXX. Here is the "Principal Investment Strategies" section from the summary prospectus (emphasis mine):
The Fund invests primarily in high-quality, short-term money market instruments. Under normal circumstances, at least 80% of the Fund’s assets are invested in securities issued by the U.S. government and its agencies and instrumentalities. Although these securities are high-quality, most of the securities held by the Fund are neither guaranteed by the U.S. Treasury nor supported by the full faith and credit of the U.S. government. To be considered high quality, a security must be determined by Vanguard to present minimal credit risk based in part on a consideration of maturity, portfolio diversification, portfolio liquidity, and credit quality. The Fund maintains a dollar-weighted average maturity of 60 days or less and a dollar-weighted average life of 120 days or less.

Under the recent money market reforms, government money market funds are required to invest at least 99.5% of their total assets in cash, government securities, and/or repurchase agreements that are collateralized solely by government securities or cash (collectively, government securities). The Fund generally invests 100% of its assets in government securities and therefore will satisfy the 99.5% requirement for designation as a government money market fund.
Under "Principal Risks", they also have this disclaimer:
An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
All that said, I am a happy owner of VMFXX. I don't think the risks are really worth worrying about.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by Northern Flicker »

J G Bankerton wrote: Sun Aug 04, 2019 10:28 pm
Northern Flicker wrote: Sun Aug 04, 2019 10:18 pm I will also mention that I view this logic (which I often see given for safe, but not the very safest investments) that if investment X fails, we all have bigger problems as being logically backwards.
If the federal government defaults on its loans what good do you think FDIC insurance will be?
The govt does not have to default on loans for there to be a default on agency debt. Short-term agency debt in a fund like Federal MMF consists of Fannie Mae and Freddie Mac debt with less than 90 days left to maturity. While there has been a market assumption that the govt will never let these default, it is stated explicitly in the prospectus for them that they are not backed by the full faith and credit of the US treasury.

In the midst of a crisis big enough for there to be a concern about a treasury default or FDIC default, is likely a time where that language would be used to establish priorities. It seems clear to me that agency debt would default well before t-bills would default or FDIC insurance would not be honored.

I think t-bills are safer than FDIC or NCUA insured accounts because they have a contractual payment date that must be honored to avoid a default. There may be a legal timeline for settling deposit account insurance, but back in the savings and loan crisis, there were long waits during which the assets were not liquid.

But insured deposit accounts would be safer than agency debt.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by Northern Flicker »

Maybe I'm misunderstanding you, but I should say that Vanguard makes no such claim about VMFXX. Here is the "Principal Investment Strategies" section from the summary prospectus (emphasis mine):
The post to which you were responding was concerned with repurchase agreements backed by t-bills, which are held by the treasury MMF, which does state that it is 100% backed by the full faith and credit of the US treasury.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by sarabayo »

Northern Flicker wrote: Wed Aug 07, 2019 2:09 pm
Maybe I'm misunderstanding you, but I should say that Vanguard makes no such claim about VMFXX. Here is the "Principal Investment Strategies" section from the summary prospectus (emphasis mine):
The post to which you were responding was concerned with repurchase agreements backed by t-bills, which are held by the treasury MMF, which does state that it is 100% backed by the full faith and credit of the US treasury.
Ah, sorry. I knew I must be missing something :)
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by Broken Man 1999 »

I am very comfortable using Vanguard Federal Money Money Market fund as our only money market fund for two reasons:

1. We never have more than $50-$100 in the fund except for the very short period of time we are moving $$$ to our credit union for expenses.

2. We have the vast majority of our bond money in Vanguard Short-term Treasury Index MFs and Vanguard Intermediate-term Treasury Index MFs.

I am less comfortable holding our Vanguard Total Bond Index Fund ETFs and MFs. Again, nothing wrong with Total Bond, it is simply a personal preference.

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

Post by J G Bankerton »

Northern Flicker wrote: Wed Aug 07, 2019 2:07 pm
J G Bankerton wrote: Sun Aug 04, 2019 10:28 pm
Northern Flicker wrote: Sun Aug 04, 2019 10:18 pm I will also mention that I view this logic (which I often see given for safe, but not the very safest investments) that if investment X fails, we all have bigger problems as being logically backwards.
If the federal government defaults on its loans what good do you think FDIC insurance will be?
The govt does not have to default on loans for there to be a default on agency debt.
I was thinking more of the "Zombie Apocalypse" when government ceases to function. . That is the only way I could see ether account fail.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by welderwannabe »

Northern Flicker wrote: Wed Aug 07, 2019 2:09 pm The post to which you were responding was concerned with repurchase agreements backed by t-bills, which are held by the treasury MMF, which does state that it is 100% backed by the full faith and credit of the US treasury.
I don't understand where this is coming from. The Vanguard Treasury MMF contains t-bill backed repurchase agreements? Where are you seeing that it has any repos? It only holds Treasury Bills and some FRNs, but not any repos that I am aware of. Their page on the fund shows 0% repos (although it also says 100% bills, which we know isn't true as it also holds FRNs). The annual report doesn't show any repos in their small number of holdings.

The federal money market has some repos, not the Treasury MMF unless you have some data I don't (which is possible). Please share.

Also, all of this is in relation to a statement that a repo backed by a t-bill is just as safe as holding a t-bill outright, which is just not correct. A treasury backed repo is a very very very safe instrument, but it is not as safe as owning an actual bill. If you disagree thats fine, but it doesnt make it right.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by Northern Flicker »

I was thinking more of the "Zombie Apocalypse" when government ceases to function. . That is the only way I could see ether account fail.
The global financial crisis was already a counterexample to this. In 2008/2009 the US govt had to bail out Freddie and Fannie, taking them into conservatorship. There was no legal obligation to do this, but there was the feeling that if they failed, the crisis would worsen considerably. Nobody was talking about the US treasury being at risk of not meeting its obligations. In fact, it took on the additional obligations of Freddie and Fannie voluntarily.

I’m not saying the Federal MMF is a risky investment. It certainly is safer than a total bond market index fund when both are considered as standalone investments. But it is a little bit less safe than an insured deposit account, t-bill, or the VG treasury MMF.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by bluquark »

The elephant in the room is that every money market or bank account is far more exposed to inflation risk than to any of the tiny risks we have been examining in a microscope here.
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Re: Does it bug anyone else that Vanguard only has money market for cash?

Post by ThriftyPhD »

It's interesting to see the range of perceptions here. I get the interest in trying to understand the minute details.

Personally, I have no issue in having money saved in federal money market funds. I use them instead of savings accounts.

I understand the argument that they might not be as safe as FDIC insured accounts. I get that the wrapper of a MMF around a T bill might might it less secure than a T bill.

However, I think all of these instrument are quite secure. And while I think it's also a miniscule risk, I would be much more worried about my local bank losing all records of my account and forcing me to go through months of proving I had an account with them than I would be about a federal money market fund breaking the buck. Breaking the buck of a quality MMF is so down my list of concerns, it doesn't register.
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