Muni Money Market funds starting to look good!

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hornet96
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Re: Muni Money Market funds starting to look good!

Post by hornet96 » Thu Jan 11, 2018 11:03 am

I noticed this the other day, where the muni money market yield was around 1.41%. When I peaked under the hood, I noticed that the NAV of the fund was something like $0.9998. So, technically it had "broken the buck," which is why the SEC yield looked so high.

As of today, the NAV is back to $1.0000.

Not meaning to cause alarm, but just wanted to point out the likely reason for the seemingly large fluctuations in the SEC yield.

aabcd
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Re: Muni Money Market funds starting to look good!

Post by aabcd » Thu Jan 11, 2018 8:23 pm

I have a question, why would ppl use online saving account instead of the tax free Muni money market?

BogleMelon
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Re: Muni Money Market funds starting to look good!

Post by BogleMelon » Thu Jan 11, 2018 10:51 pm

aabcd wrote:
Thu Jan 11, 2018 8:23 pm
I have a question, why would ppl use online saving account instead of the tax free Muni money market?
1- They are in a lower tax bracket anyways
2- They prefer the stable interest rate, unlike Muni that keep changed
3- Saving accounts are FDIC insured
4- They don't have much in saving account anyways (i.e: $100,000 in saving account with 1.25% - 15% tax bracket yields $1,062 yr, while MM fund tax free fund of 1.38% = $1,380 $1,240. Difference of $26.5$14.83/mo extra may seem not so attractive)
5- Status quo
6- They didn't hear before about such funds/ or unawareness of what bonds are in general and look at any financial product with the word stock or bond as a "wall street gambling product that should be avoided!!"
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

onourway
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Re: Muni Money Market funds starting to look good!

Post by onourway » Fri Jan 12, 2018 6:21 am

aabcd wrote:
Thu Jan 11, 2018 8:23 pm
I have a question, why would ppl use online saving account instead of the tax free Muni money market?
Also, until about 2 weeks ago, yields in the muni funds were low enough that even after tax you were coming out ahead in a good savings account. Prime MM has been rising steadily for the last year or so, but muni's jumped late in the year. Where they will level off?

So largely, MM funds have fallen out of favor for more than a decade now, so few people are familiar with using them anymore.

zzz
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Re: Muni Money Market funds starting to look good!

Post by zzz » Fri Jan 12, 2018 9:30 am

Exactly, the rates were around 0.77%. At an AGI of $51,000 that makes for a 1.4x multiplier and thus only a 1.08% effective rate. There were definitely many better savings accounts rates available than that. Even the highest tax bracket, with its 1.985x multiplier would get a 1.53% rate. There were (and still are) online saving accounts that were in the 1.55%-1.6% range. With the rate currently at 1.21%, the effective rates are now 1.7% and 2.4%. So it definitely makes sense for someone in the highest tax bracket but someone in the federal 22% bracket (and associated NY tax bracket) the 1.4x multiplier is only slightly better than the best savings account rate. FDIC insurance and a more stable interest rate would make the people in the lower tax brackets stay with the savings account.
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aabcd
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Re: Muni Money Market funds starting to look good!

Post by aabcd » Fri Jan 12, 2018 11:23 am

Learned so much from this form, let’s say if I buy one of the Muni fund. Do I buy them on the brokerage account or the Roth account.

Thanks

onourway
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Re: Muni Money Market funds starting to look good!

Post by onourway » Fri Jan 12, 2018 11:26 am

aabcd wrote:
Fri Jan 12, 2018 11:23 am
Learned so much from this form, let’s say if I buy one of the Muni fund. Do I buy them on the brokerage account or the Roth account.

Thanks
The point of holding a municipal fund is to avoid paying taxes, so one would hold them in a taxable brokerage account as your Roth is already shielded from taxes, so you'd take the (generally) higher yields of the regular Prime fund if holding in Roth.

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whodidntante
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Re: Muni Money Market funds starting to look good!

Post by whodidntante » Tue Jan 16, 2018 12:19 am

For those watching the bouncing ball, your muni fund yield has likely fallen off a bit.

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bligh
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Re: Muni Money Market funds starting to look good!

Post by bligh » Wed Jan 17, 2018 2:35 pm

whodidntante wrote:
Tue Jan 16, 2018 12:19 am
For those watching the bouncing ball, your muni fund yield has likely fallen off a bit.
Yup, looks like they are all lower than when this thread started. So far it still works better than a savings account after taxes. So far.

Oh well, it was nice while it lasted. :sharebeer

ZinCO
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Re: Muni Money Market funds starting to look good!

Post by ZinCO » Wed Jan 17, 2018 4:00 pm

bligh wrote:
Wed Jan 17, 2018 2:35 pm
whodidntante wrote:
Tue Jan 16, 2018 12:19 am
For those watching the bouncing ball, your muni fund yield has likely fallen off a bit.
Yup, looks like they are all lower than when this thread started. So far it still works better than a savings account after taxes. So far.

Oh well, it was nice while it lasted. :sharebeer
But still well above November, so I'll take it...

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heartwood
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Re: Muni Money Market funds starting to look good!

Post by heartwood » Thu Jan 25, 2018 4:34 pm

minesweep wrote:
Mon Jan 01, 2018 11:26 am
bligh wrote:
Wed Dec 27, 2017 2:06 pm
So the thread about the Prime Money Market fund made me take a quick look at the rates on some of the Municipal Money market funds and they are looking really good (for people in high tax brackets)!

As of right now here are yields :

Vanguard Municipal Money Market Fund (VMSXX) - 1.20%
Vanguard New York Municipal Money Market Fund (VYFXX) - 1.20%
Vanguard California Municipal Money Market Fund (VCTXX) 1.14%

These are tax free yields, and New York's in particular looks really good. I can see these guys providing a better return than what you would get in a savings account .. for those in higher tax brackets these would be almost as good as CD rates, but with the liquidity of a savings account.

Looks like a pretty sweet deal! I just transfered by cash reserve over to my state's municipal money market fund at Vanguard and I am seeing a pretty big jump in after tax yield as a result.

Just wanted to get the word out. :sharebeer
Today I'm seeing:
Vanguard Municipal Money Market Fund (VMSXX) - 1.29%
Vanguard New York Municipal Money Market Fund (VYFXX) - 1.29%
Vanguard California Municipal Money Market Fund (VCTXX) 1.22%
PA Municipal Money Market Fund (VPTXX) - 1.33%
NJ Municipal Money Market Fund (VNJXX) - 1.23%
Vanguard Prime Money Market (VMMXX) - 1.36%

money market funds
Just a place saver if this comes up again at yrs-end 2018:

01/25/18 I'm seeing:
Vanguard Municipal Money Market Fund (VMSXX) - 1.08%
Vanguard New York Municipal Money Market Fund (VYFXX) - 1.06%
Vanguard California Municipal Money Market Fund (VCTXX) 1.01%
PA Municipal Money Market Fund (VPTXX) - 1.03%
NJ Municipal Money Market Fund (VNJXX) - 1.01%
Vanguard Prime Money Market (VMMXX) - 1.45%

edit: Vanguard Federal Money Market (VMFXX) - 1.27% end edit

Seems to bear out my vague recollection above that Dan Wiener has noted this end of year spike in tax-free rates relative to taxable in past years.

TxInjun
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Re: Muni Money Market funds starting to look good!

Post by TxInjun » Thu Jan 25, 2018 9:34 pm

I was looking at the Muni Money Market Funds from Fidelity, and I found one for CA (my state of residence): FCFXX. The web page is here.

A few questions:
  • The ER is 0.49% !!!! This is similar to other muni money market funds. How can this be a good deal for Bogleheads?
  • I'm not exactly clear how the dividend / interest is calculated. Does it work kinda like my Savings Account? I.e., the interest is calculated for the running balance each day, and credited to the account at the end of the month? So if I deposited on the 2nd of a month and withdrew on the 29th,I would get 28 days of interest instead of 30.
  • My FCU gives 1.25% on my Savings and Checking accounts, am I better off there? I'm thinking (roughly) that the tax-equivalent yield of 1.61% - 0.49% ER = 1.12% effective yield (I know this is approximate), not as good as the Savings account.
Thanks for your thoughts!

TxInjun

patrick
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Re: Muni Money Market funds starting to look good!

Post by patrick » Thu Jan 25, 2018 9:45 pm

The end of year muni money market yield spike is indeed rather strange. However, it comes in at just the right time if you are looking for somewhere to temporarily hold the proceeds from tax loss harvesting.

nexesn
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Re: Muni Money Market funds starting to look good!

Post by nexesn » Thu Jan 25, 2018 9:57 pm

What do people think about VWIUX? We are in a high tax bracket, so the tax-exempt payout is nice.

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heartwood
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Re: Muni Money Market funds starting to look good!

Post by heartwood » Thu Jan 25, 2018 10:25 pm

nexesn wrote:
Thu Jan 25, 2018 9:57 pm
What do people think about VWIUX? We are in a high tax bracket, so the tax-exempt payout is nice.
I had to look it up for you: Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares

You don't provide enough details of your use for the funds to comment beyond generalities. It's not a MM fund, so I believe it's a completely different discussion than this thread. You'd get better answers starting a new thread around intermediate tax exempt bond funds.

It's duration is 5.4 years. If that conforms to your time horizon for the money its probably a fine tax exempt fund.

A couple of years ago I reached for some yield and used Vanguard Limited-Term Tax-Exempt Fund Investor Shares (VMLTX) for monies from a LLC received several times a year and disbursed a couple of times a year. Ins were roughly every few months; outs were semi-annual, but with unconventional spacing.

VMLTX's current duration is 2.8 years, with a current SEC yield of 1.71%. Over the course of about 2 years I lost about 1%, including reinvested dividends, due to the specific dates I bought and sold shares. It was the wrong vehicle for my time frame and situation. The online tables showed 1, 3, 5 yr total returns as positive.

Lesson learned from that specific situation, I now use a tax exempt money market and accept less yield than a limited term (or intermediate term) bond fund, but I don't lose money that I use within a one year window or less.

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Re: Muni Money Market funds starting to look good!

Post by mega317 » Fri Jan 26, 2018 1:32 am

TxInjun wrote:
Thu Jan 25, 2018 9:34 pm
I was looking at the Muni Money Market Funds from Fidelity, and I found one for CA (my state of residence): FCFXX. The web page is here.
I was ready to say this is a bad deal, but I see the yield is the same as Vanguard's CA muni MM. Not sure why the difference. Note that the stated yield is net of expenses. If your CA + federal tax is >19% you come out ahead with the muni fund.

TxInjun
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Re: Muni Money Market funds starting to look good!

Post by TxInjun » Fri Jan 26, 2018 12:12 pm

mega317 wrote:
Fri Jan 26, 2018 1:32 am

I was ready to say this is a bad deal, but I see the yield is the same as Vanguard's CA muni MM. Not sure why the difference. Note that the stated yield is net of expenses. If your CA + federal tax is >19% you come out ahead with the muni fund.
Hello mega317, I didn't follow your calculation, can you expand on that a little - thanks.

I didnt realize that the stated yield is net of expenses - thanks for the clarification.

Do you know how the interest is calculated - prorated daily and credited at month-end?

Thanks!

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Re: Muni Money Market funds starting to look good!

Post by BogleMelon » Fri Jan 26, 2018 1:38 pm

TxInjun wrote:
Thu Jan 25, 2018 9:34 pm
I was looking at the Muni Money Market Funds from Fidelity, and I found one for CA (my state of residence): FCFXX. The web page is here.

A few questions:
  • The ER is 0.49% !!!! This is similar to other muni money market funds. How can this be a good deal for Bogleheads?
My understanding is that the SEC yield is AFTER the ER
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FactualFran
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Re: Muni Money Market funds starting to look good!

Post by FactualFran » Sat Jan 27, 2018 1:02 pm

Here are end of week SEC yields obtained from the Vanguard web site over the past few weeks of the Vanguard Municipal Money Market fund and Vanguard Prime Money Market fund.

Code: Select all

Date        Muni   Prime  Difference
2017-12-08  0.88%  1.22%  -0.34%
2017-12-15  0.93%  1.27%  -0.34%
2017-12-22  1.07%  1.34%  -0.27%
2017-12-29  1.29%  1.36%  -0.07%
2018-01-05  1.37%  1.38%  -0.01%
2018-01-12  1.22%  1.42%  -0.20%
2018-01-19  1.13%  1.44%  -0.31%
2018-01-26  1.07%  1.45%  -0.38%
The difference between the Municipal and Prime fund decreased approaching the start of the new year and then increased to about what it had been before the decrease. It is not unusual for this to happen.

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bligh
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Re: Muni Money Market funds starting to look good!

Post by bligh » Tue Feb 13, 2018 12:39 am

Just a heads up. Looks like the "party" is pretty much over.

As of right now :

Vanguard Municipal Money Market Fund (VMSXX) - 0.93%
Vanguard New York Municipal Money Market Fund (VYFXX) - 0.90%
Vanguard California Municipal Money Market Fund (VCTXX) - 0.89%


I just transferred my cash back to my Savings account. :sharebeer

percolate
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Re: Muni Money Market funds starting to look good!

Post by percolate » Tue Feb 13, 2018 2:20 am

That’s still a 1.5% tax-equivalent yield for some folks, the party isn’t over yet! I’m keeping my main cashflow account in Fidelity’s equivalent fund, which beats most checking accounts.

This isn’t as safe as an FDIC-insured bank account, but could a redemption freeze actually happen in this regulatory environment? How would that even work in a CMA account? Would Fidelity cover the withdrawal from my available margin?

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bligh
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Re: Muni Money Market funds starting to look good!

Post by bligh » Wed Feb 14, 2018 5:12 pm

percolate wrote:
Tue Feb 13, 2018 2:20 am
That’s still a 1.5% tax-equivalent yield for some folks, the party isn’t over yet! I’m keeping my main cashflow account in Fidelity’s equivalent fund, which beats most checking accounts.

This isn’t as safe as an FDIC-insured bank account, but could a redemption freeze actually happen in this regulatory environment? How would that even work in a CMA account? Would Fidelity cover the withdrawal from my available margin?
Marcus / GSBank is paying 1.5% in an FDIC insured savings account that is more liquid and requires less monitoring. At this point it is better to keep the first $250K of an emergency fund in a savings account than deal with the hassle and minutely increased risk of a Money Market fund.

What is the equivalent Fidelity fund you are referring to?

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jainn
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Re: Muni Money Market funds starting to look good!

Post by jainn » Wed Feb 14, 2018 5:51 pm

As of Feb 13 2018:
Vanguard Municipal Money Market Fund (VMSXX) SEC yield 0.92%
Vanguard Federal Money Market Fund (VMFXX) SEC yield 1.29%
Vanguard Prime Money Market Fund (VMMXX) SEC yield 1.46%

2018 33% federal bracket + 0% state bracket + 3.8% NIIT* = 36.8%
VMSXX 0.92% tax equivalent yield = 1.46%


Using this calculator: https://www.calcxml.com/do/inc11 (I add up the federal + NIIT and put 36.8, with 0 for state and 0.92 for tax-free yield)

Unless I am calculating incorrectly, the above scenario of combined brackets concludes:
Vanguard Municipal Money Market Fund (VMSXX) SEC yield 0.92% = Vanguard Prime Money Market Fund (VMMXX) SEC yield 1.46%

last year tax rates, but easy to see chart: https://www.nuveen.com/Home/Documents/D ... leId=35423

*(NIIT) - This tax generally applies to net investment income if the taxpayer’s adjusted gross income exceeds certain threshold amounts, which are $250,000 in the case of married couples ling joint returns and $200,000 in the case of single individuals. Tax-exempt interest income is generally not included in net investment income for purposes of this tax.

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Makaveli
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Re: Muni Money Market funds starting to look good!

Post by Makaveli » Thu Feb 15, 2018 8:25 am

bligh wrote:
Tue Feb 13, 2018 12:39 am
Just a heads up. Looks like the "party" is pretty much over.

As of right now :

Vanguard Municipal Money Market Fund (VMSXX) - 0.93%
Vanguard New York Municipal Money Market Fund (VYFXX) - 0.90%
Vanguard California Municipal Money Market Fund (VCTXX) - 0.89%


I just transferred my cash back to my Savings account. :sharebeer
Agreed, as someone sub 33% marginal rate I swapped back to Ally.

percolate
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Re: Muni Money Market funds starting to look good!

Post by percolate » Thu Feb 15, 2018 12:27 pm

bligh wrote:
Wed Feb 14, 2018 5:12 pm
What is the equivalent Fidelity fund you are referring to?
Fidelity New York AMT Tax-Free Money Market Fund: https://fundresearch.fidelity.com/mutua ... /316337500

I also keep a separate emergency fund in an FDIC-insured savings account. The MM fund is just for my checking account, which can handle the moderate risk of a redemption freeze or loss of value.

zeugmite
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Re: Muni Money Market funds starting to look good!

Post by zeugmite » Thu Feb 15, 2018 12:50 pm

ohai wrote:
Wed Dec 27, 2017 2:37 pm
Also, if you believe in market risk premium, whatever your alternative investment was when rates were lower should have similar excess return to what they had when interest rates were lower.
Risk premium isn't static. It is in the processing of increasing but it's very low still.

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Re: Muni Money Market funds starting to look good!

Post by Voltron » Wed Mar 28, 2018 3:30 pm

Pardon my ignorance, but is there any reason to hold Vanguard Municipal Money Market Fund over Vanguard California Municipal Money Market Fund (VCTXX)?

I live in California. I presume if I held Vanguard Municipal Money Market Fund may owe some states taxes on dividends since pooled from different state municipality bonds, vs California draws only from California. This correct?

Thanks ahead for anyone answering my basic question.

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Hodor
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Re: Muni Money Market funds starting to look good!

Post by Hodor » Wed Mar 28, 2018 5:44 pm

Voltron wrote:
Wed Mar 28, 2018 3:30 pm
Pardon my ignorance, but is there any reason to hold Vanguard Municipal Money Market Fund over Vanguard California Municipal Money Market Fund (VCTXX)?

I live in California. I presume if I held Vanguard Municipal Money Market Fund may owe some states taxes on dividends since pooled from different state municipality bonds, vs California draws only from California. This correct?

Thanks ahead for anyone answering my basic question.
You are correct that you would owe state taxes on the interest from out of state munis held in the regular muni fund, but not the California muni fund. The reason one might wish to hold the countrywide muni fund anyway is that it is more diversified, and your money would be more protected in the event of a credit crisis in which California stopped making payments on its bonds. That said, I would choose the California bond fund if I lived there and wanted a muni fund.

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Re: Muni Money Market funds starting to look good!

Post by CedarWaxWing » Wed Mar 28, 2018 6:06 pm

bligh wrote:
Wed Dec 27, 2017 2:06 pm
So the thread about the Prime Money Market fund made me take a quick look at the rates on some of the Municipal Money market funds and they are looking really good (for people in high tax brackets)!

As of right now here are yields :

Vanguard Municipal Money Market Fund (VMSXX) - 1.20%
Vanguard New York Municipal Money Market Fund (VYFXX) - 1.20%
Vanguard California Municipal Money Market Fund (VCTXX) 1.14%

These are tax free yields, and New York's in particular looks really good. I can see these guys providing a better return than what you would get in a savings account .. for those in higher tax brackets these would be almost as good as CD rates, but with the liquidity of a savings account.

Looks like a pretty sweet deal! I just transfered by cash reserve over to my state's municipal money market fund at Vanguard and I am seeing a pretty big jump in after tax yield as a result.

Just wanted to get the word out. :sharebeer
Perhaps I am missing something, but M* gives different yields.
For example: http://quotes.morningstar.com/chart/fun ... ture=en-US (VMSXX) 0.82

Vanguard: https://personal.vanguard.com/us/JSP/Fu ... =INT#tab=1

Thanks

M

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Re: Muni Money Market funds starting to look good!

Post by patrick » Wed Mar 28, 2018 6:10 pm

CedarWaxWing wrote:
Wed Mar 28, 2018 6:06 pm

Perhaps I am missing something, but M* gives different yields.
For example: http://quotes.morningstar.com/chart/fun ... ture=en-US (VMSXX) 0.82

Vanguard: https://personal.vanguard.com/us/JSP/Fu ... =INT#tab=1

Thanks

M
That Morningstar is showing the average yield over the past year, while the Vanguard site is showing the current yield.

CedarWaxWing
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Re: Muni Money Market funds starting to look good!

Post by CedarWaxWing » Wed Mar 28, 2018 6:20 pm

sec yield? https://personal.vanguard.com/us/JSP/Fu ... =INT#tab=0

Any reason to think that will not fluctuate much?

thanks

M

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Re: Muni Money Market funds starting to look good!

Post by welderwannabe » Wed Mar 28, 2018 6:36 pm

CedarWaxWing wrote:
Wed Mar 28, 2018 6:20 pm
sec yield? https://personal.vanguard.com/us/JSP/Fu ... =INT#tab=0

Any reason to think that will not fluctuate much?

thanks

M
The yield seems to spike near the end of quarters, then it backs off a bit.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

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Re: Muni Money Market funds starting to look good!

Post by Artsdoctor » Thu Mar 29, 2018 10:03 am

Voltron wrote:
Wed Mar 28, 2018 3:30 pm
Pardon my ignorance, but is there any reason to hold Vanguard Municipal Money Market Fund over Vanguard California Municipal Money Market Fund (VCTXX)?

I live in California. I presume if I held Vanguard Municipal Money Market Fund may owe some states taxes on dividends since pooled from different state municipality bonds, vs California draws only from California. This correct?

Thanks ahead for anyone answering my basic question.
There would be no reason for a CA resident to hold the national muni money market fund. The CA fund is no more likely to "break the buck" than the national fund. As always, you'd want to compare after-tax yields. In the past, both muni money markets had some degree of AMT income although fewer people will be subject to the AMT in 2018 going forward.

aaronl
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Re: Muni Money Market funds starting to look good!

Post by aaronl » Sat Mar 31, 2018 6:47 pm

I'm on the fence about switching to VCTXX. On one hand, its tax-equivalent yield seems to fluctuate between matching online savings account rates, and significantly exceeding them, so it seems like it would work out well for anyone in a high enough tax bracket. But the variability of the yield gives me pause, and I'm not sure it's worth the effort of opening an account with Vanguard just to access that fund (everything else is ETFs held at other brokers, or bank deposits).

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Re: Muni Money Market funds starting to look good!

Post by Kevin M » Sat Mar 31, 2018 9:16 pm

Hodor wrote:
Wed Mar 28, 2018 5:44 pm
Voltron wrote:
Wed Mar 28, 2018 3:30 pm
Pardon my ignorance, but is there any reason to hold Vanguard Municipal Money Market Fund over Vanguard California Municipal Money Market Fund (VCTXX)?

I live in California. I presume if I held Vanguard Municipal Money Market Fund may owe some states taxes on dividends since pooled from different state municipality bonds, vs California draws only from California. This correct?

Thanks ahead for anyone answering my basic question.
You are correct that you would owe state taxes on the interest from out of state munis held in the regular muni fund, but not the California muni fund.
Actually, you pay CA state taxes on all interest from the national muni money market (and bond) funds. CA requires that at least 50% of the holdings are CA munis to get any tax exemption, and the national muni funds don't meet that requirement.

The taxable-equivalent yields (TEYs) depend on your individual tax rates and whether or not you itemize deductions, and they do indeed vary over time. Sometimes the national muni MM fund or even the prime MM fund will provide higher TEY, and sometimes the CA muni MM fund will.

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Re: Muni Money Market funds starting to look good!

Post by Kevin M » Sat Mar 31, 2018 9:26 pm

welderwannabe wrote:
Wed Mar 28, 2018 6:36 pm
CedarWaxWing wrote:
Wed Mar 28, 2018 6:20 pm
sec yield? https://personal.vanguard.com/us/JSP/Fu ... =INT#tab=0

Any reason to think that will not fluctuate much?

thanks

M
The yield seems to spike near the end of quarters, then it backs off a bit.
Interesting. I hadn't noticed that pattern, but when this thread started the CA muni money market was the best deal for me. But then the muni MM yields started dropping while Prime MM yield continued to increase, so not too long after the thread started Prime MM was providing a significantly higher taxable-equivalent yield (TEY) for me. Now it looks like the CA muni MM fund again is the clear winner for me (1.82% TEY compared to 1.68% for Prime MM and 1.77% TEY for national muni MM), and we are indeed at the end of a calendar quarter.

It appears that if you really want to maximize your TEY, you have to monitor the funds fairly frequently. However, one or the other Vanguard MM funds has consistently been beating my Ally savings account at 1.45% in recent months, although you can get much higher yields at other banks or credit unions if you want to chase yield on your cash.

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Re: Muni Money Market funds starting to look good!

Post by zzz » Tue Apr 03, 2018 12:05 am

The Vanguard NY Municipal Money Market is at 1.34%, so the title of this forum is once again correct. For someone in the highest Federal and NY Tax Bracket this is equivalent to a 2.66% yield. For a single person in NY making $55,000 per yer it's equivalent to a 1.87% yield.
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Re: Muni Money Market funds starting to look good!

Post by Kevin M » Tue Apr 03, 2018 2:09 pm

Wow, the muni MM yields really spiked yesterday. Looking at the CA muni MM fund, relevant to me, it jumped from 1.18% on 3/29 (previous trading day) to 1.27% on 4/2. This is a TEY of 1.95% for me, compared to 1.71% in Prime MM.

After the high yields we saw in late December and early January, the CA fund yield dropped as low as 0.87% in mid-February, and at yields this low Prime MM was better for me. As discussed just upthread, it appears that you really have to pay attention, since the muni MM yields have been varying a lot, while Prime MM has consistently been marching upward.

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Re: Muni Money Market funds starting to look good!

Post by bligh » Tue Apr 03, 2018 2:23 pm

Kevin M wrote:
Tue Apr 03, 2018 2:09 pm

After the high yields we saw in late December and early January, the CA fund yield dropped as low as 0.87% in mid-February, and at yields this low Prime MM was better for me. As discussed just upthread, it appears that you really have to pay attention, since the muni MM yields have been varying a lot, while Prime MM has consistently been marching upward.

Kevin
Yeah this is why I went back to plain old savings account a few weeks back. For the sums involved it doesn't seem worth the added effort (to me) of keeping an eye on the yields of those municipal money market funds. But I agree, their yields are definitely looking better this year.

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Re: Muni Money Market funds starting to look good!

Post by zzz » Thu Apr 12, 2018 9:04 pm

Vanguard NY Muni Market savings account effective interest rate benefits depending on your AGI
NY Tax Free Rate = 1.41% as of April 12, 2018
Standard Deduction = $12,000 $24,000
FED Rate Individuals Married Filing Jointly
10% 0 0
12% $9,526 $19,051
22% $38,701 $77,401
24% $82,501 $165,001
32% $157,501 $315,001
35% $200,001 $400,001
37% $500,000 $600,000

Standard Deduction = $8,000 $16,000
NY Rate Individuals Married Filing Jointly
4% $0 $0
4.50% $8,500 $17,150
5.25% $11,700 $23,600
5.90% $13,900 $27,900
6.45% $21,400 $43,000
6.65% $80,650 $161,550
6.85% $215,400 $323,200
8.82% $1,077,550 $2,155,350
NIIT $250,000 3.80%
Single Married
Single Single Single Equivalent Married Married Married Equivalent
Fed NY Both Interest Fed NY Both Interest
$20,000 10.00% 5.25% 15.25% 1.66% 0% 4.00% 4.00% 1.47%
$30,000 12.00% 6.45% 18.45% 1.73% 10% 4.00% 14.00% 1.64%
$40,000 12.00% 6.45% 18.45% 1.73% 10% 5.25% 15.25% 1.66%
$50,000 12.00% 6.45% 18.45% 1.73% 12% 5.90% 17.90% 1.72%
$60,000 22.00% 6.45% 28.45% 1.97% 12% 6.45% 18.45% 1.73%
$80,000 22.00% 6.45% 28.45% 1.97% 12% 6.45% 18.45% 1.73%
$90,000 22.00% 6.65% 28.65% 1.98% 12% 6.45% 18.45% 1.73%
$100,000 24.00% 6.65% 30.65% 2.03% 12% 6.45% 18.45% 1.73%
$110,000 24.00% 6.65% 30.65% 2.03% 22% 6.45% 28.45% 1.97%
$160,000 24.00% 6. 65% 30.65% 2.03% 22% 6.45% 28.45% 1.97%
$170,000 32.00% 6.65% 38.65% 2.30% 22% 6.45% 28.45% 1.97%
$180,000 32.00% 6.65% 38.65% 2.30% 22% 6.65% 28.65% 1.98%
$190,000 32.00% 6.65% 38.65% 2.30% 24% 6.65% 30.65% 2.03%
$210,000 32.00% 6.65% 38.65% 2.30% 24% 6.65% 30.65% 2.03%
$220,000 35.00% 6.65% 41.65% 2.42% 24% 6.65% 30.65% 2.03%
$230,000 35.00% 6.85% 41.85% 2.42% 24% 6.65% 30.65% 2.03%
$330,000 38.80% 6.85% 45.65% 2.59% 24% 6.65% 30.65% 2.03%
$410,000 38.80% 6.85% 45.65% 2.59% 32% 6.85% 38.85% 2.31%
$420,000 38.80% 6.85% 45.65% 2.59% 32% 6.85% 38.85% 2.31%
$430,000 38.80% 6.85% 45.65% 2.59% 35% 6.85% 41.85% 2.42%
$510,000 38.80% 6.85% 45.65% 2.59% 35% 6.85% 41.85% 2.42%
$520,000 40.80% 6.85% 47.65% 2.69% 35% 6.85% 41.85% 2.42%
$530,000 40.80% 6.85% 47.65% 2.69% 35% 6.85% 41.85% 2.42%
$540,000 40.80% 6.85% 47.65% 2.69% 35% 6.85% 41.85% 2.42%
$630,000 40.80% 6.85% 47.65% 2.69% 37% 6.85% 43.85% 2.51%
$2,200,000 40.80% 8.82% 49.62% 2.80% 37% 8.82% 45.82% 2.60%

So for a single taxpayer making $60,000 a year (AGI), 1.41% is equivalent to 1.97%
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Re: Muni Money Market funds starting to look good!

Post by onourway » Fri Apr 13, 2018 5:44 am

I get 1.92% at that tax rate (22% federal, 6.65% State). In any case, the rate you see today is inflated for end of quarter. Look at the YTD and 1-year numbers to get a better estimate of what your equivalent rate is.

It should still be a bit better overall to stay in the Prime Fund.

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Re: Muni Money Market funds starting to look good!

Post by zzz » Fri Apr 13, 2018 6:22 am

So will it run up at the end of every quarter? I did see it run up at the end of the year and into early January and then run down throughout January. Just curious why the Muni Monney Market does this and the Prime does not. I don't think looking at the full year makes sense as the overall rate has lifted from a year ago, perhaps the YTD, or last quarter makes the most sense. I'm making 2.8% so (for me at the moment) the rate has to decline a lot before the prime looks better. My son is in the same rate as you but he commented that it's too easy to transfer money between the accounts (NY Muni and Prime) whereas I can see for most people it's just not worth the trouble.
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Re: Muni Money Market funds starting to look good!

Post by neurosphere » Fri Apr 13, 2018 7:16 am

So will it run up at the end of every quarter? I did see it run up at the end of the year and into early January and then run down throughout January. Just curious why the Muni Money Market does this and the Prime does not.
This came up in another thread and I made a graph.

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



Image

It seems there is indeed a run-up each quarter, but the exact timing and magnitude is variable. Someone had asked a question about whether there might be an opportunity to arbitrage at some marginal tax rate, if the yields consistently criss cross. My qualitative answer was perhaps, but certainly not worth the effort.
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Re: Muni Money Market funds starting to look good!

Post by zzz » Fri Apr 13, 2018 8:20 am

This is fantastic, thanks for posting. I imagine a graph for the Vanguard NY Money Market (of course beneficial to New Yorkers' like myself) even at the 25% Federal bracket (6.65% for NY tax) would look better than the prime overall. The higher tax brackets would be a no brainer in favor of the NY Muni over the prime.
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Re: Muni Money Market funds starting to look good!

Post by FactualFran » Fri Apr 13, 2018 2:35 pm

zzz wrote:
Fri Apr 13, 2018 6:22 am
So will it run up at the end of every quarter? I did see it run up at the end of the year and into early January and then run down throughout January. Just curious why the Muni Monney Market does this and the Prime does not. I don't think looking at the full year makes sense as the overall rate has lifted from a year ago, perhaps the YTD, or last quarter makes the most sense. I'm making 2.8% so (for me at the moment) the rate has to decline a lot before the prime looks better. My son is in the same rate as you but he commented that it's too easy to transfer money between the accounts (NY Muni and Prime) whereas I can see for most people it's just not worth the trouble.
A run up does not happen every quarter. For example, one did not happen at the end of 2015. As to why it happens with Muni Money Market funds, I have the impression that near the end of a quarter there is a change in the supply and demand for very short term municipal securities. Because a money market fund maintains a constant NAV, market changes affect the yield rather than the NAV.

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Re: Muni Money Market funds starting to look good!

Post by Kevin M » Fri Apr 13, 2018 5:00 pm

TEY depends on whether you itemize deductions or not, so that could be why some of you are getting slightly different TEYs. Tax exemption is slightly less valuable if you already are getting a federal deduction for state income taxes.

TEY of CA Muni MM for me now is 2.08% (SEC yield 1.35%), at 27% fed and 8% state marginal, not itemizing. That's a significant premium over Prime MM at 1.76%, so well worth a few mouse clicks to shift between them (to me). I just broke a fairly large amount of Ally no-penalty CDs at 1.75% to move into CA MM (about a third of that was transferred to Fidelity to buy some more individual munis) , considering that Prime MM at 1.76% was a good backstop in case the Muni MM rates fall again. They have been continuing to climb gradually, and we're almost half a month past the end of quarter.

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Re: Muni Money Market funds starting to look good!

Post by zzz » Fri Apr 13, 2018 5:35 pm

The interest we're earning now is in 2018, which means the rules are different, so there are no longer 25% or 27% Federal Tax Brackets. This makes owning munis less favorable as the brackets are lower. State deductions are now limited (assuming the CA/NY attempts to do an end run around the limitation don't bear fruit) so we can then essentially just add the Federal Tax and State Tax. In this case itemizing does not matter as you can't itemize it beyond the $10,000 cap. This makes munis more favorable then in the past. Overall, my taxes are going up this year as the loss of the property and state tax deduction more than makes up for the lower bracket making the munis more valuable. Of course for munis, it's all about the tax laws and the tax bracket that you're in.
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Re: Muni Money Market funds starting to look good!

Post by BlackcatCA » Fri Apr 13, 2018 10:34 pm

It seems that everyone uses SEC yield to calculate TEY, which is indeed close to/superior to bank saving rates (2% or so). This comparison leads one to chose Muni MM over saving accounts.

I wonder though if distribution yield should be used instead? For VCTXX the distribution yields were 1.07, 0.91 and 1.06% for the first 3 months of the year, averaging to around 1%. The March distribution was lower than expected as rates were going up by then. If one calculates TEY using distribution yield, one will then choose 2% saving account over Muni MM instead. Which is the correct assumption?

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Re: Muni Money Market funds starting to look good!

Post by Kevin M » Sat Apr 14, 2018 9:37 pm

zzz wrote:
Fri Apr 13, 2018 5:35 pm
The interest we're earning now is in 2018, which means the rules are different, so there are no longer 25% or 27% Federal Tax Brackets.
There was not a 27% federal tax bracket in 2017 either. My federal marginal tax rate will be 27% because my ordinary income will be in the 12% bracket, but qualified dividends will span the 0% ant 15% federal QD/LTCG tax rates, so each dollar of additional ordinary income is taxed at 12%, but also pushes another dollar of QD from 0% to 15%, so 12% + 15% = 27%. For 2017 this was 15% + 15% = 30%. You can either verify this by working through the Schedule D Tax Worksheet with the appropriate amounts, or run a quick simulation with Tax Caster.
This makes owning munis less favorable as the brackets are lower.
Perhaps. For me my federal marginal rate decreases from 30% to 27%, and I expect state to remain at 8%. Slightly lower, but I'm wondering if muni prices have adjusted to this. An assumption that's been stated on the forum is that munis are priced to be competitive with taxable bonds at the 25% federal tax rate. If that assumption was correct when there was a 25% federal tax bracket, then prices should have adjusted so munis now are competitive at the 22% federal tax rate.
State deductions are now limited (assuming the CA/NY attempts to do an end run around the limitation don't bear fruit) so we can then essentially just add the Federal Tax and State Tax. In this case itemizing does not matter as you can't itemize it beyond the $10,000 cap. This makes munis more favorable then in the past.

Yes, TEY is slightly higher if you don't itemize and deduct state income tax, and this will be the case for many more people in 2018. I normally don't itemize anyway, so no change for me.

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Re: Muni Money Market funds starting to look good!

Post by Kevin M » Sat Apr 14, 2018 9:56 pm

BlackcatCA wrote:
Fri Apr 13, 2018 10:34 pm
It seems that everyone uses SEC yield to calculate TEY, which is indeed close to/superior to bank saving rates (2% or so). This comparison leads one to chose Muni MM over saving accounts.

I wonder though if distribution yield should be used instead? For VCTXX the distribution yields were 1.07, 0.91 and 1.06% for the first 3 months of the year, averaging to around 1%. The March distribution was lower than expected as rates were going up by then. If one calculates TEY using distribution yield, one will then choose 2% saving account over Muni MM instead. Which is the correct assumption?
Good question.

I wouldn't say that March distribution was lower than expected. SEC yield on 3/1/2018 was 0.95%, and the distribution yield was 1.06%.

https://personal.vanguard.com/us/funds/ ... &year=#res

So if you used SEC yield as your expected return for the month, your return was higher than expected.

As you say, yields increased in March, ending the month at 1.18%, so a distribution yield of 1.06% seems reasonable.

SEC yield has continued to climb, now at 1.36% as of 4/13/2018. If SEC yield continues to climb, distribution yield for April could be in the 1.36% ballpark. Since "The SEC yield for a money market fund is calculated by annualizing its daily income distributions for the previous seven days", we have earned 1.36% (annualized) in the CA MM fund for the last seven days.

So I would say that SEC yield is a better number to use than distribution yield, since the latter is based on income for the previous calendar month, while the former is based on income distributions over previous seven days.

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