VMMXX (Vanguard Prime MM) risks

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
sco
Posts: 735
Joined: Thu Sep 24, 2015 2:28 pm

Re: VMMXX (Vanguard Prime MM) risks

Post by sco » Tue Jun 12, 2018 11:18 am

jalbert wrote:
Tue Jun 12, 2018 3:01 am
sco wrote:
Mon Jun 11, 2018 11:56 pm
I agree, but aren't those returns already including those expenses?

I guess what I am looking for, is what is actually the risks that they are taking for those marginally better returns?
It is taking more risk (credit risk, liquidity risk) to get returns that almost match vanguard's federal or treasury MMF. The risk premium is flowing to Fidelity via the ER.
Understood, this is one place where Fidelity hasn’t felt the need to play catch-up with Vanguard

aristotelian
Posts: 4131
Joined: Wed Jan 11, 2017 8:05 pm

Re: VMMXX (Vanguard Prime MM) risks

Post by aristotelian » Tue Jun 12, 2018 12:01 pm

pascalwager wrote:
Sat Jun 09, 2018 12:48 am
I don't understand why Vanguard would produce money market funds meant to hold cash that are not riskless and don't understand why anyone would want to place their cash in such funds. I guess Vanguard is simply competing with the banks and Treasury Direct for it's share of our cash investments.
It is an account for holding cash at a constant $1/share with a higher yield than Federal Money Market Fund. I hold a few months expenses in it. It has not broken the buck yet since I have held it. So far, so good.

sport
Posts: 6848
Joined: Tue Feb 27, 2007 3:26 pm
Location: Cleveland, OH

Re: VMMXX (Vanguard Prime MM) risks

Post by sport » Tue Jun 12, 2018 12:21 pm

Another way to look at this: Compared to stock funds and bond funds, VMMXX has so much less risk that it is not a concern. If you are worried about the safety of VMMXX, how can you sleep at night holding bond and stock funds? Accordingly the risk level of VMMXX is way down the list of things I worry about. We also get compensated for that risk. The current SEC yield for this fund is 1.95%.

jalbert
Posts: 3050
Joined: Fri Apr 10, 2015 12:29 am

Re: VMMXX (Vanguard Prime MM) risks

Post by jalbert » Tue Jun 12, 2018 2:18 pm

Understood, this is one place where Fidelity hasn’t felt the need to play catch-up with Vanguard
As far as I know, the only area where Fidelity is competitive with Vanguard on ER is with their index funds and index-fund based target year Freedom funds. They do have treasury, TIPS, and total bond index funds, in addition to stock index funds that are competitive. Those are sufficient to construct a good portfolio, so I could certainly make things work just fine with Fidelity index funds.

But if you want a corporate bond fund, GNMA fund, money-market fund, or actively managed stock fund you will pay 30-50 bp/yr more than at Vanguard.
Risk is not a guarantor of return.

User avatar
Kurmudjon
Posts: 157
Joined: Fri Feb 23, 2007 9:18 am
Location: Not yet where I wanna be.

Re: VMMXX (Vanguard Prime MM) risks

Post by Kurmudjon » Tue Jun 12, 2018 2:48 pm

Remarkable to me that folks worry about such things with a Vanguard MMF!
I warm so easy so dance me loose - it shines so bright the moon.

Dancer
Posts: 75
Joined: Mon Feb 03, 2014 2:06 am

Re: VMMXX (Vanguard Prime MM) risks

Post by Dancer » Tue Jun 12, 2018 2:56 pm

Kurmudjon wrote:
Tue Jun 12, 2018 2:48 pm
Remarkable to me that folks worry about such things with a Vanguard MMF!
If wanted risk, wouldnt be in MMF. We started into the abyss / seen MMF break the buck. Rules gave changed.
While Prime is low risk, Federal MM is lower, as has been discussed above.

pascalwager
Posts: 1103
Joined: Mon Oct 31, 2011 8:36 pm

Re: VMMXX (Vanguard Prime MM) risks

Post by pascalwager » Tue Jun 12, 2018 7:49 pm

Kurmudjon wrote:
Tue Jun 12, 2018 2:48 pm
Remarkable to me that folks worry about such things with a Vanguard MMF!
One reason is that a riskless option for cash does exist: bank HY savings accounts with FDIC protection. Also, in my case a lot of money is involved. For me, as a retiree, cash is part of my investment portfolio.

I'm presently moving my cash from a bank account to the VG Treasury MM fund. Unlike the bank account, the Treasury fund avoids state taxes. If I lived in a low tax state, I would probably keep my cash in the Synchrony bank account if their rates stayed competitive.

Right now, after factoring in my own particular state taxes, VG Prime MM still has about five basis points advantage over Treasury MM, but I like the lower risk for the latter fund.

User avatar
MossySF
Posts: 2260
Joined: Thu Apr 19, 2007 9:51 pm
Contact:

Re: VMMXX (Vanguard Prime MM) risks

Post by MossySF » Tue Jun 12, 2018 8:26 pm

As a perspective, the Reserve MMF went bust because it broke the buck by 2%.

How much money do you guys even have in bank accounts or MMFs? 10K? 25K? Unless you just got an inheritance or sold your company, you probably don't have much. So in a worse-than-2008 situation, I'd be losing sleep over my main 1M portfolio dropping 60% instead of my 10K-25K MMF dropping 2%.

The buck price MMF thing is psychological anyways. In brokerage accounts, I've been using MMF-like ETFs where the price does fluctuate because the NAV includes the accumulating dividends -- and then NAV drops after distributions.

jalbert
Posts: 3050
Joined: Fri Apr 10, 2015 12:29 am

Re: VMMXX (Vanguard Prime MM) risks

Post by jalbert » Tue Jun 12, 2018 10:47 pm

As a perspective, the Reserve MMF went bust because it broke the buck by 2%.
How long were the assets tied up and illiquid while that was sorted out? What if we had a worse depression?
Risk is not a guarantor of return.

Nate79
Posts: 2564
Joined: Thu Aug 11, 2016 6:24 pm
Location: Portland, OR

Re: VMMXX (Vanguard Prime MM) risks

Post by Nate79 » Tue Jun 12, 2018 11:39 pm

jalbert wrote:
Tue Jun 12, 2018 10:47 pm
As a perspective, the Reserve MMF went bust because it broke the buck by 2%.
How long were the assets tied up and illiquid while that was sorted out? What if we had a worse depression?

Check out these extensive posts on the subject. It was apparently many many months.

viewtopic.php?t=231614

User avatar
Leif
Posts: 2407
Joined: Wed Sep 19, 2007 4:15 pm

Re: VMMXX (Vanguard Prime MM) risks

Post by Leif » Tue Jun 12, 2018 11:47 pm

pascalwager wrote:
Tue Jun 12, 2018 7:49 pm
Right now, after factoring in my own particular state taxes, VG Prime MM still has about five basis points advantage over Treasury MM, but I like the lower risk for the latter fund.
Now I have Prime, but I live in a high tax state. In a comparison chart they (Prime-VMMXX and Treasury-VUSXX) look to track closely, with Prime gaining a bit over time (before tax). Is it your experience that on a delta of % yield they track closely? My experience with the CA Muni MM is that it is erratic in the delta of % yield with Prime (on a tax equivalent yield basis). I see the ER on the Treasury MM is 7 bp less, with a higher initial investment of $50k. The 7 bp less helps close the gap a bit.

It is interesting to read the disclaimer for the two funds (from Vanguard's on-line description of the funds under the Overview tab). Note that Prime has some extra restrictions, which I have highlighted.
Prime MM wrote:The fund is only available to retail investors (natural persons). You could lose money by investing in the fund. Although the fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. The fund may impose a fee upon sale of your shares or may temporarily suspend your ability to sell shares if the fund's liquidity falls below required minimums because of market conditions or other factors. An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The fund's sponsor has no legal obligation to provide financial support to the fund, and you should not expect that the sponsor will provide financial support to the fund at any time.
Treasury MM wrote:You could lose money by investing in the fund. Although the fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The fund’s sponsor has no legal obligation to provide financial support to the fund, and you should not expect that the sponsor will provide financial support to the fund at any time.
Investors should diversify across many asset-classes so that whatever happens, we will not have all our investments in underperforming asset classes and thereby fail to meet our goals-Taylor Larimore

pascalwager
Posts: 1103
Joined: Mon Oct 31, 2011 8:36 pm

Re: VMMXX (Vanguard Prime MM) risks

Post by pascalwager » Wed Jun 13, 2018 1:11 am

Leif wrote:
Tue Jun 12, 2018 11:47 pm
pascalwager wrote:
Tue Jun 12, 2018 7:49 pm
Right now, after factoring in my own particular state taxes, VG Prime MM still has about five basis points advantage over Treasury MM, but I like the lower risk for the latter fund.
Now I have Prime, but I live in a high tax state. In a comparison chart they (Prime and Treasury) look to track closely, with Prime gaining a bit over time (before tax). Is it your experience that on a delta of % yield they track closely? My experience with the CA Muni MM is that it is erratic in the delta of % yield with Prime (on a tax equivalent yield basis). I see the ER on the Treasury MM is 7 bp less, with a higher initial investment of $50k. The 7 bp less helps close the gap a bit.

It is interesting to read the disclaimer for the two funds.
Prime MM wrote:The fund is only available to retail investors (natural persons). You could lose money by investing in the fund. Although the fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. The fund may impose a fee upon sale of your shares or may temporarily suspend your ability to sell shares if the fund's liquidity falls below required minimums because of market conditions or other factors. An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The fund's sponsor has no legal obligation to provide financial support to the fund, and you should not expect that the sponsor will provide financial support to the fund at any time.
Treasury MM wrote:You could lose money by investing in the fund. Although the fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The fund’s sponsor has no legal obligation to provide financial support to the fund, and you should not expect that the sponsor will provide financial support to the fund at any time.
The two return curves do track closely since 1992. I don't know about a delta % yield comparison. I looked at CA Muni MM, but the TEY is more than 50 basis points less than Treasury MM for me. The Treasury fund doesn't have default risk, but Prime and CA Muni do.

Actually, I used both Prime MM and CA Muni MM in the past for large amounts, but I seem to see things differently as a retiree.

And I'm still considering using Treasury Direct T-bills instead of a MM fund for my cash. I might use 4-week and three-month bills with a modest liquidity reserve in my local bank checking account or even leave some in Synchrony HY Savings instead. Or even put $51k in Treasury MM, and also use bills (for higher yield) and Synchrony. (The Treasury MM fund $50k isn't only an initial minimum, but a continuous minimum.)

RAchip
Posts: 253
Joined: Sat May 07, 2016 7:31 pm

Re: VMMXX (Vanguard Prime MM) risks

Post by RAchip » Wed Jun 13, 2018 8:27 am

Dancer wrote:
Tue Jun 12, 2018 2:56 pm
Kurmudjon wrote:
Tue Jun 12, 2018 2:48 pm
Remarkable to me that folks worry about such things with a Vanguard MMF!
If wanted risk, wouldnt be in MMF. We started into the abyss / seen MMF break the buck. Rules gave changed.
While Prime is low risk, Federal MM is lower, as has been discussed above.
Putting money in the Vanguard PMMF involves very very little risk. So small as to be inconsequential in my view. The MMF reforms applicable to VG's PMMF make it LESS RISKY, not more. Institutions are not allowed to invest in this fund (they had been putting huge sums in that created problems when they all tried to pull them out). The other "gates" just prevent a run on the fund, protecting and preserving your money. I routinely have many millions in this fund and don't lose a second of sleep.

User avatar
Leif
Posts: 2407
Joined: Wed Sep 19, 2007 4:15 pm

Re: VMMXX (Vanguard Prime MM) risks

Post by Leif » Wed Jun 13, 2018 10:05 am

pascalwager wrote:
Wed Jun 13, 2018 1:11 am
(The Treasury MM fund $50k isn't only an initial minimum, but a continuous minimum.)
I just talked with a Vanguard Rep. He says as long as I keep it above $1,000 I'm okay. Below that and it is subject to liquidation.

Thanks for the info. vs. Prime. The Treasury MM, VUSXX, appears to be a good fund for me. I'm not concerned about Prime's safety. I think it is very safe. But, with a TEY that currently is slightly favoring VUSXX, slightly less interest which will also save a bit on my federal income taxes, and fewer restrictions, what is not to like?
Last edited by Leif on Wed Jun 13, 2018 11:29 am, edited 3 times in total.
Investors should diversify across many asset-classes so that whatever happens, we will not have all our investments in underperforming asset classes and thereby fail to meet our goals-Taylor Larimore

MnD
Posts: 3426
Joined: Mon Jan 14, 2008 12:41 pm

Re: VMMXX (Vanguard Prime MM) risks

Post by MnD » Wed Jun 13, 2018 10:36 am

I like reading about the fear of something like VMMXX in a pretty financially savvy place like Bogleheadlandia. In real life most people I know have their long-term cash holdings at the local work-affiliated credit union for maybe 0.50% at best. They would not only be afraid of VMMXX but they would also be afraid of an on-line FDIC bank they can't drive to in 5-15 minutes. You can only do better than average when the average are fearful and willing to take a haircut for that perceived security.

pascalwager
Posts: 1103
Joined: Mon Oct 31, 2011 8:36 pm

Re: VMMXX (Vanguard Prime MM) risks

Post by pascalwager » Wed Jun 13, 2018 11:28 am

Leif wrote:
Wed Jun 13, 2018 10:05 am
pascalwager wrote:
Wed Jun 13, 2018 1:11 am
(The Treasury MM fund $50k isn't only an initial minimum, but a continuous minimum.)
I just talked with a Vanguard Rep. He says as long as I keep it above $1,000 I'm okay. Below that and it is subject to liquidation.

Thanks for the info. vs. Prime. The Treasury MM, VUSXX, appears to be a good fund for me.
Very good! Thanks for the info. Makes Treasury MM even more attractive for me.

pascalwager
Posts: 1103
Joined: Mon Oct 31, 2011 8:36 pm

Re: VMMXX (Vanguard Prime MM) risks

Post by pascalwager » Wed Jun 13, 2018 11:46 am

MnD wrote:
Wed Jun 13, 2018 10:36 am
I like reading about the fear of something like VMMXX in a pretty financially savvy place like Bogleheadlandia. In real life most people I know have their long-term cash holdings at the local work-affiliated credit union for maybe 0.50% at best. They would not only be afraid of VMMXX but they would also be afraid of an on-line FDIC bank they can't drive to in 5-15 minutes. You can only do better than average when the average are fearful and willing to take a haircut for that perceived security.
You make an interesting point, but I wonder if they would typically fear VMMXX. As a deferred comp offering, some might actually go 100% because of the perceived safety of the MM class.

Given my tax particulars, the annual after tax return difference on a $250k amount between Prime MM and Treasury MM at present rates is about $125.

pascalwager
Posts: 1103
Joined: Mon Oct 31, 2011 8:36 pm

Re: VMMXX (Vanguard Prime MM) risks

Post by pascalwager » Wed Jun 13, 2018 11:53 am

MnD wrote:
Wed Jun 13, 2018 10:36 am
I like reading about the fear of something like VMMXX in a pretty financially savvy place like Bogleheadlandia. In real life most people I know have their long-term cash holdings at the local work-affiliated credit union for maybe 0.50% at best. They would not only be afraid of VMMXX but they would also be afraid of an on-line FDIC bank they can't drive to in 5-15 minutes. You can only do better than average when the average are fearful and willing to take a haircut for that perceived security.
Is Bogleheadlandia a website? Nothing comes up on a Google search.

pascalwager
Posts: 1103
Joined: Mon Oct 31, 2011 8:36 pm

Re: VMMXX (Vanguard Prime MM) risks

Post by pascalwager » Wed Jun 13, 2018 3:35 pm

pascalwager wrote:
Wed Jun 13, 2018 11:53 am
MnD wrote:
Wed Jun 13, 2018 10:36 am
I like reading about the fear of something like VMMXX in a pretty financially savvy place like Bogleheadlandia. In real life most people I know have their long-term cash holdings at the local work-affiliated credit union for maybe 0.50% at best. They would not only be afraid of VMMXX but they would also be afraid of an on-line FDIC bank they can't drive to in 5-15 minutes. You can only do better than average when the average are fearful and willing to take a haircut for that perceived security.
Is Bogleheadlandia a website? Nothing comes up on a Google search.
Guess you were referring to bogleheads.org.
Last edited by pascalwager on Thu Jun 14, 2018 1:47 am, edited 1 time in total.

pascalwager
Posts: 1103
Joined: Mon Oct 31, 2011 8:36 pm

Re: VMMXX (Vanguard Prime MM) risks

Post by pascalwager » Wed Jun 13, 2018 4:10 pm

According to Vanguard, this is the main Prime MM risk that Treasury MM avoids:

"Industry concentration risk: The chance that there will be overall problems affecting a particular industry. Because the fund will invest more than 25% of its assets in securities of companies in the financial services industry, the fund’s performance will depend to a greater extent on the overall condition of that industry."

jalbert
Posts: 3050
Joined: Fri Apr 10, 2015 12:29 am

Re: VMMXX (Vanguard Prime MM) risks

Post by jalbert » Wed Jun 13, 2018 4:27 pm

If I had $50K+ sitting in a money market fund (which I don’t) hands down I would use the Vanguard Treasury MMF. It has a yield that matches or slightly exceeds that of the Federal MMF, is fully state tax-free, and is probably the safest mutual fund or bank account on the planet in nominal terms.

The problem with the Prime MMF is that the minimum balance for admiral shares is something like $5M. They are basically institutional shares but if Vanguard classifies it as institutional then the share price has to float with calculated NAV under the latest rules, instead of being pegged to a buck.

So most individual investors will hold investor shares of Prime MMF with an ER of 0.16%. This gives up 7 bp/yr of the risk premium to admin cost relative to the treasury MMF.
Risk is not a guarantor of return.

pascalwager
Posts: 1103
Joined: Mon Oct 31, 2011 8:36 pm

Re: VMMXX (Vanguard Prime MM) risks

Post by pascalwager » Thu Jun 14, 2018 1:43 am

The VG Treasury MM fund seems to have only one share class, but it's not called "Investor" or "Admiral". And, as a test, if you do a search of the complete VG mutual funds list, adjust the filter to enable Admiral and don't enable $50k minimum, then the Treasury MM fund isn't included in the partial list.

Post Reply