Vanguard Money Market Question

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Prudence
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Vanguard Money Market Question

Post by Prudence »

Currently I have cash sitting in Ally, GS, and Barclays savings accounts getting from 1.00 to 1.25 interest. I would like better liquidity e.g. relief from various annoying limits and time delays on cash transfers. Vanguard prime money market admiral shares (VMRXX) currently has an SEC yield of 0.86 with 43 days duration. So, I am thinking of moving all of my cash (except a separate checking account) to this account. I will be giving up some yield obviously. But, I see little or no interest rate risk. And, I will be able to execute buy orders, when needed, freely. Also, maybe the SEC yield will rise if the Fed raises rates later this year (similar benefit may apply to the bank savings account yields). Thoughts?
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1210sda
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Re: Vanguary Money Market Question

Post by 1210sda »

Check out the minimum investment requirement.....

1210
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mhc
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Re: Vanguary Money Market Question

Post by mhc »

The Vanguard MM has not been very competitive for quite a few years, as compared to a high interest savings account. It seems to be catching up.

If you link your savings account to your Vanguard account, you should be able to eliminate most the delays in moving money around. You can purchase directly from your savings account. You can have dividends deposited directly into your savings account. I do this with my local checking account.
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EyeDee
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Re: Vanguary Money Market Question

Post by EyeDee »

.
Do you really want to tie up $5,000,000 in a money market fund (minimum for admiral shares VMRXX)? Putting a smaller amount in the investor shares might make some sense, but you still might want to keep the majority of the money in the higher yielding funds and tie them to your Vanguard account as suggested by mhc.
Prudence wrote:Currently I have cash sitting in Ally, GS, and Barclays savings accounts getting from 1.00 to 1.25 interest. I would like better liquidity e.g. relief from various annoying limits and time delays on cash transfers. Vanguard prime money market admiral shares (VMRXX) currently has an SEC yield of 0.86 with 43 days duration. So, I am thinking of moving all of my cash (except a separate checking account) to this account. I will be giving up some yield obviously. But, I see little or no interest rate risk. And, I will be able to execute buy orders, when needed, freely. Also, maybe the SEC yield will rise if the Fed raises rates later this year (similar benefit may apply to the bank savings account yields). Thoughts?
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MP123
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Re: Vanguary Money Market Question

Post by MP123 »

Wow, the $5,000,000 minimum would give many people some pause... :shock:

Assuming you have that I wouldn't want it all in a MM account.
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Re: Vanguary Money Market Question

Post by *3!4!/5! »

I don't understand how having money at Ally gives you any less liquidity than a Vanguard MM fund.
I don't understand how having money at Ally makes it any slower to buy or sell at Vanguard, compared to having money in a Vanguard MM fund.

OP could you please explain your thinking? Perhaps you are mistaken about some things.
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Prudence
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Re: Vanguary Money Market Question

Post by Prudence »

*3!4!/5! wrote:I don't understand how having money at Ally gives you any less liquidity than a Vanguard MM fund.
I don't understand how having money at Ally makes it any slower to buy or sell at Vanguard, compared to having money in a Vanguard MM fund.

OP could you please explain your thinking? Perhaps you are mistaken about some things.
For example, Ally allows a maximum online transfer of $150,000 per day. Their standard transfer can take three days.
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runner9
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Re: Vanguard Money Market Question

Post by runner9 »

How much money are you regularly moving around that $150K a day is a problem?
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Prudence
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Re: Vanguard Money Market Question

Post by Prudence »

runner9 wrote:How much money are you regularly moving around that $150K a day is a problem?
Less than that regularly. So, when MM rates were so unattractive, online savings was the best option. Now that MM rates are less unattractive, I like the liquidity.
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Re: Vanguard Money Market Question

Post by sco »

Prudence wrote:
runner9 wrote:How much money are you regularly moving around that $150K a day is a problem?
Less than that regularly. So, when MM rates were so unattractive, online savings was the best option. Now that MM rates are less unattractive, I like the liquidity.
So have an ally checking account and move the money there. THen find someone willing to take a check for over 150k...
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Re: Vanguary Money Market Question

Post by *3!4!/5! »

Prudence wrote:
*3!4!/5! wrote:I don't understand how having money at Ally gives you any less liquidity than a Vanguard MM fund.
I don't understand how having money at Ally makes it any slower to buy or sell at Vanguard, compared to having money in a Vanguard MM fund.

OP could you please explain your thinking? Perhaps you are mistaken about some things.
For example, Ally allows a maximum online transfer of $150,000 per day. Their standard transfer can take three days.
I don't know about upper limits for these transfers. But apart from possible restriction on very large transactions, what possible drawbacks would Ally have compared to a Vanguard MM fund? (And if these kinds of amounts, the interest difference gets significant.)
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Re: Vanguary Money Market Question

Post by Vanguard Fan 1367 »

MP123 wrote:Wow, the $5,000,000 minimum would give many people some pause... :shock:

Assuming you have that I wouldn't want it all in a MM account.
I thought the 5 million was a joke so I looked at the Vanguard website!! Instead of .8 percent on the Prime Money Market they will give you .86 if you ante up 5 million!! Wow!
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JDDS
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Re: Vanguard Money Market Question

Post by JDDS »

The Vanguard Prime Money Market is a retail MM fund rather than institutional, so they renamed the institutional share class to admiral, but sadly kept the $5 million minimum. It's an inelegant solution to the problem for sure.
beardsworth
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Re: Vanguard Money Market Question

Post by beardsworth »

Prudence, are you aware that, as a non-"government" money market fund, Vanguard Prime can have money movement restrictions of its own? These are avoided by using Vanguard Federal Money Market and Vanguard Treasury Money Market, both of which ar "government" funds. But here's what the prospectus says about Prime:

"In July 2014, the Securities and Exchange Commission (SEC) implemented a number of regulatory changes designed to enhance the stability and resilience of all money market funds. The reforms have created three categories of money market funds:

• Retail money market funds, which may maintain a stable net asset value (NAV) but are subject to liquidity fees and redemption gates.

• Government money market funds, which may maintain a stable NAV but are not required to implement liquidity fees and redemption gates.

• Institutional money market funds, which are required to have a floating NAV and are subject to liquidity fees and redemption gates. . . .

Vanguard has designated Vanguard Prime Money Market Fund as a retail money market fund. . . . Retail money market funds are permitted to continue to maintain a stable NAV through the use of amortized cost accounting. If a retail money market fund’s weekly assets fall below a certain threshold, retail money market funds are subject to fees and gates.

There are two types of liquidity fees: discretionary liquidity fees and default liquidity fees.

Discretionary liquidity fee. The Fund may impose a liquidity fee of up to 2% on all redemptions in the event that the Fund’s weekly liquid assets fall below 30% of its total assets if the Board determines that it is in the best interest of the Fund. Once the Fund has restored its weekly liquidity assets to 30% of total assets, any liquidity fee must be suspended.

Default liquidity fee. The Fund is required to impose a liquidity fee of 1% on all redemptions in the event that the Fund’s weekly liquid assets fall below 10% of its total assets unless the Fund’s Board determines that (1) the fee is not in the best interest of the Fund or (2) a lesser/higher fee (up to 2%) is in the best interest of the Fund.

In addition to, or in lieu of, the liquidity fee, the Fund is permitted to implement temporarily a redemption gate (i.e., suspend redemptions) if the Fund’s weekly liquid assets fall below 30% of its total assets. The gate could remain in effect for no longer than 10 days in any 90-day period. Once the Fund has restored its weekly liquidity assets to 30% of total assets, the gate must be lifted.

If you redeem shares when the Fund has imposed a liquidity fee, then the amount you receive for your redemption will be reduced by the amount of the liquidity fee and will generally cause you to recognize a loss for tax purposes equal to the amount of that fee. Once the Fund imposes a redemption gate, then unprocessed orders to redeem will be canceled and the Fund will not accept redemption orders until the gate is no longer in effect. If you still wish to redeem once the gate is lifted, you will need to submit a new redemption request to the Fund or your financial intermediary."




Bottom line: IMO, and aside from the issue of its very large minimum investment requirement for Admiral shares vs. Investor shares, Prime is not worth the hassle of potential restrictions, complexity, and (however rare) loss of principal if money market conditions become turbulent. Better to stick with Vanguard Federal or Vanguard Treasury, both of which also have higher overall credit quality than Prime.

I assume these are among the same reasons why Vanguard itself changed the default sweep fund in its brokerage accounts from Prime Money Market to Federal Money Market.[/quote]
Tamales
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Re: Vanguard Money Market Question

Post by Tamales »

Clarification please:

If I'm interpreting some of the replies (from mhc and *3!4) correctly, I was not aware of this:

Are you saying that if you have an Ally savings account, then in your Vanguard brokerage account you set up some link to that Ally account, and after that link is in place (perhaps it takes a few days to fully establish it initially) you could do the following:

If for example you wanted to buy 100 shares of VTI in your Vanguard account DURING MARKET HOURS, from the "buy" screen while logged in to your Vanguard account, your Ally account will appear as a funding source (probably along with VMFXX (federal mmkt acct). Then you just select Ally as the funding source, hit "buy," and a few SECONDS later the 100 VTI shares are in your account, purchased at the current market price.

Is that right? If so, this is great, and I had the mistaken impression that a brokerage account would have no motivation to make linked external account access so streamlined.
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mhc
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Re: Vanguard Money Market Question

Post by mhc »

Tamales,

I have a plain old mutual fund account and it works that way. I don't know how a VBS account works. I don't know how ETF transactions work.
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clip651
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Re: Vanguard Money Market Question

Post by clip651 »

Tamales wrote:Clarification please:

If I'm interpreting some of the replies (from mhc and *3!4) correctly, I was not aware of this:

Are you saying that if you have an Ally savings account, then in your Vanguard brokerage account you set up some link to that Ally account, and after that link is in place (perhaps it takes a few days to fully establish it initially) you could do the following:

If for example you wanted to buy 100 shares of VTI in your Vanguard account DURING MARKET HOURS, from the "buy" screen while logged in to your Vanguard account, your Ally account will appear as a funding source (probably along with VMFXX (federal mmkt acct). Then you just select Ally as the funding source, hit "buy," and a few SECONDS later the 100 VTI shares are in your account, purchased at the current market price.

Is that right? If so, this is great, and I had the mistaken impression that a brokerage account would have no motivation to make linked external account access so streamlined.
I haven't bought ETFs. But with a brokerage account and a linked savings account, you certainly can put in a mutual funds order to buy (e.g. VTSAX) from the linked (Ally or other bank) account. No need to have the money ever hit the money market account. The trade takes the normal amount of time to settle, just as if you'd bought from the settlement account, but you get that day's closing price if bought during trading hours. It may work similarly with ETFs - you could call Vanguard and ask.
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Re: Vanguard Money Market Question

Post by triceratop »

Tamales wrote:Clarification please:

If I'm interpreting some of the replies (from mhc and *3!4) correctly, I was not aware of this:

Are you saying that if you have an Ally savings account, then in your Vanguard brokerage account you set up some link to that Ally account, and after that link is in place (perhaps it takes a few days to fully establish it initially) you could do the following:

If for example you wanted to buy 100 shares of VTI in your Vanguard account DURING MARKET HOURS, from the "buy" screen while logged in to your Vanguard account, your Ally account will appear as a funding source (probably along with VMFXX (federal mmkt acct). Then you just select Ally as the funding source, hit "buy," and a few SECONDS later the 100 VTI shares are in your account, purchased at the current market price.

Is that right? If so, this is great, and I had the mistaken impression that a brokerage account would have no motivation to make linked external account access so streamlined.
I didn't use Ally with Vanguard but it should make no difference. No, there is not a checkbox for a "funding source". Instead it relies on the fact that equities settle on T+3, so one can comfortably read the e-mail confirmation notice, sleep on it, and transfer the funds the next day while comfortably still having the funds in the settlement account by settlement.
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Re: Vanguard Money Market Question

Post by lack_ey »

With a Vanguard brokerage account a mutual fund purchase asks where the money will come from, and this can be the settlement fund or any linked bank account. Or a check, even, though maybe that would delay the order? ETF and presumably stock just takes from the settlement fund, but you can put in money after the trade (but before T+3) and be fine. The trade will show up as soon as it executes on the market.
Tamales
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Re: Vanguard Money Market Question

Post by Tamales »

Thanks for the replies. I'm going to start a new thread on this so I don't further hijack this one.

Here's a link to the new thread: viewtopic.php?f=2&t=212400
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