Diversification of Emergency Fund via Money Market Fund

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eschersenigma
Posts: 6
Joined: Thu Aug 09, 2018 9:50 pm

Diversification of Emergency Fund via Money Market Fund

Post by eschersenigma » Fri Aug 10, 2018 3:30 pm

I've done a lot of research to reach my decision to establish an emergency fund via a Money Market fund, based on:

- Extremely secure job
- High disposable income
- Relatively young

I am very unlikely to have to dip into my emergency fund in the near future (~2-3 years), barring some catastrophic car issue (again, very unlikely), therefore I'm much more inclined to maximize my ROI on these assets. Based on this fact, I've determined that ~3 months of E-Fund is suitable for me (~12-13K)

I'm currently establishing a portfolio primarily with Schwab (IRA), and therefore I'm looking first at their "Purchased Money Fund" which is broken down into "Prime", "Government and Treasury Money", and "Municipal Money" funds.

From my research on this forum and others, it seems the general consensus is that the Prime SWVXX is extremely solid for a safe yet respectable yield.

My questions are:
1. Is the Schwab PMF a good choice based on my criteria, or are there significantly better options out there, and
2. Given I were to choose the PMF, would I want to diversify among the Primary/Gov/Treasury/Municipal funds? If so, what should I consider when deciding my allocations?

Thanks a lot in advance for any help!

PFInterest
Posts: 1624
Joined: Sun Jan 08, 2017 12:25 pm

Re: Diversification of Emergency Fund via Money Market Fund

Post by PFInterest » Fri Aug 10, 2018 4:54 pm

who said you couldnt use a MM for your efund?
however why wouldnt use you VMMXX at a lower cost and higher yield?

eschersenigma
Posts: 6
Joined: Thu Aug 09, 2018 9:50 pm

Re: Diversification of Emergency Fund via Money Market Fund

Post by eschersenigma » Fri Aug 10, 2018 4:59 pm

PFInterest wrote:
Fri Aug 10, 2018 4:54 pm
who said you couldnt use a MM for your efund?
I may have mis-spoke or been unclear/confused: for Schwab I was under the impression that their Purchased Money Funds were synonymous with Money Market Funds, or at least, "you can buy/sell SWVXX overnight to use as a MMF".
PFInterest wrote:
Fri Aug 10, 2018 4:54 pm
however why wouldnt use you VMMXX at a lower cost and higher yield?
I was under the impression from my research that the lower expense ratio of the Schwab funds basically made up for their lower yield vs. Vanguard. Sorry, I realize now I was mis-interpreting the information available.

So let's say, hypothetically, I did pull the trigger on something like VMMXX; would I still want 100% of my E-fund in this vehicle, or is further diversification optimal? From research it seems prudent investors have multiple vaults which range from FDIC-insured savings accounts, through MMs like VMMXX, up to brokerage accounts like VTSAX.

PFInterest
Posts: 1624
Joined: Sun Jan 08, 2017 12:25 pm

Re: Diversification of Emergency Fund via Money Market Fund

Post by PFInterest » Fri Aug 10, 2018 5:33 pm

eschersenigma wrote:
Fri Aug 10, 2018 4:59 pm
PFInterest wrote:
Fri Aug 10, 2018 4:54 pm
who said you couldnt use a MM for your efund?
I may have mis-spoke or been unclear/confused: for Schwab I was under the impression that their Purchased Money Funds were synonymous with Money Market Funds, or at least, "you can buy/sell SWVXX overnight to use as a MMF".
PFInterest wrote:
Fri Aug 10, 2018 4:54 pm
however why wouldnt use you VMMXX at a lower cost and higher yield?
I was under the impression from my research that the lower expense ratio of the Schwab funds basically made up for their lower yield vs. Vanguard. Sorry, I realize now I was mis-interpreting the information available.

So let's say, hypothetically, I did pull the trigger on something like VMMXX; would I still want 100% of my E-fund in this vehicle, or is further diversification optimal? From research it seems prudent investors have multiple vaults which range from FDIC-insured savings accounts, through MMs like VMMXX, up to brokerage accounts like VTSAX.
you could leave it all there. you could ladder it. different strokes for different .... something.

eschersenigma
Posts: 6
Joined: Thu Aug 09, 2018 9:50 pm

Re: Diversification of Emergency Fund via Money Market Fund

Post by eschersenigma » Fri Aug 10, 2018 5:42 pm

PFInterest wrote:
Fri Aug 10, 2018 5:33 pm
eschersenigma wrote:
Fri Aug 10, 2018 4:59 pm
PFInterest wrote:
Fri Aug 10, 2018 4:54 pm
who said you couldnt use a MM for your efund?
I may have mis-spoke or been unclear/confused: for Schwab I was under the impression that their Purchased Money Funds were synonymous with Money Market Funds, or at least, "you can buy/sell SWVXX overnight to use as a MMF".
PFInterest wrote:
Fri Aug 10, 2018 4:54 pm
however why wouldnt use you VMMXX at a lower cost and higher yield?
I was under the impression from my research that the lower expense ratio of the Schwab funds basically made up for their lower yield vs. Vanguard. Sorry, I realize now I was mis-interpreting the information available.

So let's say, hypothetically, I did pull the trigger on something like VMMXX; would I still want 100% of my E-fund in this vehicle, or is further diversification optimal? From research it seems prudent investors have multiple vaults which range from FDIC-insured savings accounts, through MMs like VMMXX, up to brokerage accounts like VTSAX.
you could leave it all there. you could ladder it. different strokes for different .... something.
Haha fair enough, thanks for the info! Last question, and I feel very stupid that I can't find the answer:
In this thread, the poster says he "put [his] money into SWYJX / Schwab Target 2055 Index Fund". I have opened a Schwab Roth IRA, and would like to leverage the same Fund, however I can't figure out how to specify this!

PFInterest
Posts: 1624
Joined: Sun Jan 08, 2017 12:25 pm

Re: Diversification of Emergency Fund via Money Market Fund

Post by PFInterest » Fri Aug 10, 2018 5:53 pm

eschersenigma wrote:
Fri Aug 10, 2018 5:42 pm
PFInterest wrote:
Fri Aug 10, 2018 5:33 pm
eschersenigma wrote:
Fri Aug 10, 2018 4:59 pm
PFInterest wrote:
Fri Aug 10, 2018 4:54 pm
who said you couldnt use a MM for your efund?
I may have mis-spoke or been unclear/confused: for Schwab I was under the impression that their Purchased Money Funds were synonymous with Money Market Funds, or at least, "you can buy/sell SWVXX overnight to use as a MMF".
PFInterest wrote:
Fri Aug 10, 2018 4:54 pm
however why wouldnt use you VMMXX at a lower cost and higher yield?
I was under the impression from my research that the lower expense ratio of the Schwab funds basically made up for their lower yield vs. Vanguard. Sorry, I realize now I was mis-interpreting the information available.

So let's say, hypothetically, I did pull the trigger on something like VMMXX; would I still want 100% of my E-fund in this vehicle, or is further diversification optimal? From research it seems prudent investors have multiple vaults which range from FDIC-insured savings accounts, through MMs like VMMXX, up to brokerage accounts like VTSAX.
you could leave it all there. you could ladder it. different strokes for different .... something.
Haha fair enough, thanks for the info! Last question, and I feel very stupid that I can't find the answer:
In this thread, the poster says he "put [his] money into SWYJX / Schwab Target 2055 Index Fund". I have opened a Schwab Roth IRA, and would like to leverage the same Fund, however I can't figure out how to specify this!
is there money in the IRA? then you just exchange it. if you havent contributed yet, then you specify when you contribute.

eschersenigma
Posts: 6
Joined: Thu Aug 09, 2018 9:50 pm

Re: Diversification of Emergency Fund via Money Market Fund

Post by eschersenigma » Fri Aug 10, 2018 8:48 pm

PFInterest wrote:
Fri Aug 10, 2018 5:53 pm
is there money in the IRA? then you just exchange it. if you havent contributed yet, then you specify when you contribute.
Roger that. I didn't see any options when opening the account + the initial investment. Once the transaction clears, I'll investigate exchanging it. Thanks for the help!

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