Money Market Yield Question

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tstark
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Joined: Sat May 04, 2013 10:59 am

Money Market Yield Question

Post by tstark »

Hello Everyone - I have a quick question on how money market funds display their returns vs. the expense ratio. As an example, looking at Vanguard Prime Money Market fund (VMMXX), both the SEC 7-day and Compound Yield are 0.01%. However, the Expense Ratio is 0.16%. Does this mean I am effectively losing money by having my funds in VMMXX? Or is the SEC/Compound Yield calculated after deducting the Expense Ratio fees?

Depending on the answer to this question, is there a better place for cash? Or do the Bogleheads still prefer VMMXX?

Thank you!
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David Jay
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Re: Money Market Yield Question

Post by David Jay »

SEC yield is after expenses.

That being said, all Money Market funds are headed towards zero due to low interest rates. At this point, who knows which accounts will handle the new, low interest rate regime best. Moving money around over the next 3-6 months for a tenth or two of one percentage point is just make-work activity.
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ruralavalon
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Re: Money Market Yield Question

Post by ruralavalon »

David Jay wrote: Tue Sep 22, 2020 11:03 am SEC yield is after expenses.

That being said, all Money Market funds are headed towards zero due to low interest rates. At this point, who knows which accounts will handle the new, low interest rate regime best. Moving money around over the next 3-6 months for a tenth or two of one percentage point is just make-work activity.
+ 1.

SEC Yield is net of expenses.

Don't waste any time or effort in trying to get a 0.1% or 0.2% improvement in returns.
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alex_686
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Re: Money Market Yield Question

Post by alex_686 »

SEC Yield is one of the highest quality numbers, as that shows forward economic gains. After expenses, et. al.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
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willthrill81
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Re: Money Market Yield Question

Post by willthrill81 »

tstark wrote: Tue Sep 22, 2020 10:55 am Depending on the answer to this question, is there a better place for cash? Or do the Bogleheads still prefer VMMXX?
Yes, high-yield savings accounts like those at Ally are paying .80% interest.
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dbr
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Re: Money Market Yield Question

Post by dbr »

I don't think anyone would "prefer" a money market fund at a brokerage for cash savings as distinct from settlement of transactions.

There is no reward to be had in earning interest on cash holdings of any kind right now. While one may thrash around trying to gain a fraction of a percent here or a fraction of a percent there it is more of a poor joke than a serious endeavor to do that right now.

Note that as far as losing money, current interest rates are negative after inflation so all the options are losing money.

If you have savings that you know you are going to withdraw in the near future in an amount that has to be kept secure, then CDs and savings accounts are good for that. The money market fund is not terrible as commented above, nor would it be the first choice.

For longer term investing, meaning over a lifetime, a proper allocation to stocks and, for example, intermediate term bonds is probably to be recommended.
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