Is it stupid for me to be considering removing all of my money from my Vanguard mutual funds?

[exodusNH]

It's a settlement account, the worst that can happen is earning 0% interest.

Actually, money market funds have "broken the buck" before, in 1994 and 2008. So while interest may theoretically go to %0, the value of each share in the money market fund has gone below $1/share in the past, thus interest isn't the only factor that determines the value of the funds in VMFXX.

So will you lose less in a money market fund if the economy crashes. Maybe. Probably.

That said, as others have pointed out, the inflationary risks of such a move as going to all cash seem more probable and realistic, than the scenario one could imagine that would be behind a move to all cash.

Three cases in total in 50+ years is not a risk worth considering.

One in 1978 because the fund invested in average maturities of 2 years instead of the 30-90 days noted in the prospectus. This resulted in $0.94/share instead of $1.00. Essentially, this was fraud, though not technically given the rules are the time.

The one in 1994 was due to investing in adjustable rate securities and saw its NAV to to $0.96/share. This was an institutional fund. Retail investors weren't affected.

Finally, Lehman Brothers bankruptcy resulted in the Reserve Primary Fund going to $0.97/share. Ultimately, the fund was dissolved at $0.991/share -- less than a penny loss.

Since 2008, rules have changed both for government money funds and funds targets at retail vs institutions. You might as well buy personal lightning and meteorite insurance if you're concerned about a government MMF breaking the buck.

So while it's possible, the sizes of the potential losses are relatively small. Most people underestimate how close to financial meltdown we were in 2008.

[KneePartsPro]

It seems as if OP may have wisely taken a commercial break from responding to this thread in order to switch said settlement account to the higher interest paying VMFXX. Having gained that advice, hopefully they will give much consideration to what has been said here about not withdrawing from the market based upon current news but establishing a personal investment philosophy to work from moving forward.

I wonder what settlement fund the OP was using? Last I checked, I couldn’t pick a different fund. I would like to eventually switch to VUSXX.

It looks like OP was using Vanguard Cash Deposit for their settlement account assets. Guessing they chose it for the fdic insurance. I know there are several fund options you may use for your settlement account. I believe VUSXX is one of them.
https://investor.vanguard.com/investmen ... ey-markets

[rkhusky]

I wonder what settlement fund the OP was using? Last I checked, I couldn’t pick a different fund. I would like to eventually switch to VUSXX.

It looks like OP was using Vanguard Cash Deposit for their settlement account assets. Guessing they chose it for the fdic insurance. I know there are several fund options you may use for your settlement account. I believe VUSXX is one of them.
https://investor.vanguard.com/investmen ... ey-markets

Gotcha. Someone else had mentioned Cash Plus at a higher rate, but I see that those are two different things.

And it still looks like I can’t choose VUSXX for my settlement fund.

[KneePartsPro]

It looks like OP was using Vanguard Cash Deposit for their settlement account assets. Guessing they chose it for the fdic insurance. I know there are several fund options you may use for your settlement account. I believe VUSXX is one of them.
https://investor.vanguard.com/investmen ... ey-markets

Gotcha. Someone else had mentioned Cash Plus at a higher rate, but I see that those are two different things.

And it still looks like I can’t choose VUSXX for my settlement fund.

I think I see what you’re referring to as far as the settlement account options and you’re right, VUSXX is not listed as one of them. Sorry for the confusion on my part.
https://investor.vanguard.com/investmen ... sh-deposit

[rkhusky]

Gotcha. Someone else had mentioned Cash Plus at a higher rate, but I see that those are two different things.

And it still looks like I can’t choose VUSXX for my settlement fund.

I think I see what you’re referring to as far as the settlement account options and you’re right, VUSXX is not listed as one of them. Sorry for the confusion on my part.
https://investor.vanguard.com/investmen ... sh-deposit

I’ve read that some people have the option, but it’s not rolled out to everyone yet.

[KneePartsPro]

I think I see what you’re referring to as far as the settlement account options and you’re right, VUSXX is not listed as one of them. Sorry for the confusion on my part.
https://investor.vanguard.com/investmen ... sh-deposit

I’ve read that some people have the option, but it’s not rolled out to everyone yet.

Interesting. Do you mind sharing what your reasoning is for wanting to use VUSXX over VMFXX? Evidently you’re not alone if Vanguard is rolling the option out to others but a “significant” upside is not immediately apparent to me. What am I missing?

Editing to say that I found the thread below on this topic and look forward to researching the potential advantages for my situation. Best. viewtopic.php?t=446925

[grok87]

Stay the course.

+1

[rkhusky]

I’ve read that some people have the option, but it’s not rolled out to everyone yet.

Interesting. Do you mind sharing what your reasoning is for wanting to use VUSXX over VMFXX? Evidently you’re not alone if Vanguard is rolling the option out to others but a “significant” upside is not immediately apparent to me. What am I missing?

Editing to say that I found the thread below on this topic and look forward to researching the potential advantages for my situation. Best. viewtopic.php?t=446925

For me it would just be for my taxable account and only if VUSXX is returning about the same as VMFXX.

[Northern Flicker]

Actually, money market funds have "broken the buck" before, in 1994 and 2008. So while interest may theoretically go to %0, the value of each share in the money market fund has gone below $1/share in the past, thus interest isn't the only factor that determines the value of the funds in VMFXX.

So will you lose less in a money market fund if the economy crashes. Maybe. Probably.

That said, as others have pointed out, the inflationary risks of such a move as going to all cash seem more probable and realistic, than the scenario one could imagine that would be behind a move to all cash.

:sharebeer

Three cases in total in 50+ years is not a risk worth considering.

One in 1978 because the fund invested in average maturities of 2 years instead of the 30-90 days noted in the prospectus. This resulted in $0.94/share instead of $1.00. Essentially, this was fraud, though not technically given the rules are the time.

The one in 1994 was due to investing in adjustable rate securities and saw its NAV to to $0.96/share. This was an institutional fund. Retail investors weren't affected.

Finally, Lehman Brothers bankruptcy resulted in the Reserve Primary Fund going to $0.97/share. Ultimately, the fund was dissolved at $0.991/share -- less than a penny loss.

Since 2008, rules have changed both for government money funds and funds targets at retail vs institutions. You might as well buy personal lightning and meteorite insurance if you're concerned about a government MMF breaking the buck.

So while it's possible, the sizes of the potential losses are relatively small. Most people underestimate how close to financial meltdown we were in 2008.

It is very likely that numerous MMFs would have broken the buck in 2008/2009 had the Fed not propped up the commercial paper market. We were not just close to financial meltdown then. We had a financial meltdown. We also were fortunate to have had a Fed leader then who had studied the Great Depression in detail, and knew how to respond to it, instead of making the mistakes the Fed made in the 1930's, which made things worse then. The Fed is still dealing with the overhang of that response on its balance sheet.

Changes to MMF regulations also were intended to reduce contagion if a fund does break the buck, and thus reduce the need and justification for the Fed to intervene. While I think we are less likely to see funds needing intervention to avoid breaking the buck, it may actually be more likely that one does do so if the changes allow it to happen in an insulated manner.

Lastly, there also was a change allowing MMFs to take expenses out of fund principal if the fund does not earn enough interest to cover the ER. The fund company could choose to cover it, but they no longer are obliged to do so to avoid breaking the buck. This could cause some MMFs to break the buck if cash rates head back to zero. It would be implemented as a reduction in number of shares held, still fixed at $1.00/share.

VUSXX and similar treasury MMFs are the safest MMFs generally.

[1moreyr]

…

Please don't make your replies political, I'm not here to debate politics or try to start a fight.

Thanks!

You can’t make it political and then pretend it isn’t.

Cheers

+1
that's all I am going to be able to say on this one... and in before the thread gets locked

[Caleb4387]

Your too young, with too little,to take it now.

[Caleb4387]

Your too young, with too little,to take it now.

[MathWizard]

I think that you would regret it.

I did not go to cash during
the dot.com crash in 2000
the 2001/2003 recession
the 2008/9 great recession
the post Covid drop in 2022

If I could predict these events, I'd have a lot more money.

If you are thinking of running to cash, maybe your asset allocation
stocks vs bonds is too high in stocks.

[munemaker]

We have all seen this movie before. Someone jumps out of the market expecting a big drop that turns out to be a big gain, and then wonder how and when to get back in. Studies have shown the market does equally well regardless of who is in charge. Turn off the news and relax.

MUN

[bltn]

If you are too uncomfortable to stay in the market right now, then go ahead and pull out. In 10 years you can come back and either tell us how smart and inciteful you were, or use the experience as a cautionary tale for new BHs such as myself. I figure it is about 50/50 chance it could go either way.

Probably much less than a 50% chance of a significant correction. And in 10 years the market will almost assuredly be higher. Or it will indeed be a cautionary tale.

[yzy]

Yes this is the perfect time to take a break. I've been all stocks for 37 years and turn 60 this year. After the huge gains the last 2 years, I moved all to money market last month. I'm taking some time out to read all the great advice on these forums. I'll figure out my AA and move back in later this year. If there's a big correction, nice to be on the sideline. If not, I'll have my new plan as I head to retirement. I believe now more than ever do what's the least stressful and if moving to a low risk position achieves that, why not.

[Don46]

I would make an asset allocation decision, not an all out of the market decision. The whole spirit of Boglehead investing is to set up a simple asset allocation for your age and stick with it. In addition to age, however, there may be a “can I sleep at night” variable, which appears to be in full force with you. I would resist it, but maybe sell off 10-15 percent, and reinvest when (and if) that downturn comes. You are at an age where you still have a good long time horizon to build. If the market goes down you will be buying more shares each month.

[Fireishere]

Yes this is the perfect time to take a break. I've been all stocks for 37 years and turn 60 this year. After the huge gains the last 2 years, I moved all to money market last month. I'm taking some time out to read all the great advice on these forums. I'll figure out my AA and move back in later this year. If there's a big correction, nice to be on the sideline. If not, I'll have my new plan as I head to retirement. I believe now more than ever do what's the least stressful and if moving to a low risk position achieves that, why not.

Why did you move from 100% stocks to 0% stocks BEFORE you read all the great advice on these forums?

[UpperNwGuy]

Yes this is the perfect time to take a break. I've been all stocks for 37 years and turn 60 this year. After the huge gains the last 2 years, I moved all to money market last month. I'm taking some time out to read all the great advice on these forums. I'll figure out my AA and move back in later this year. If there's a big correction, nice to be on the sideline. If not, I'll have my new plan as I head to retirement. I believe now more than ever do what's the least stressful and if moving to a low risk position achieves that, why not.

I think you made a mistake. You describe a two step process: (1) move from 100% stocks to money market funds, then (2) move from money market funds to a stock/bond allocation. Why not skip the first step and simply move to a stock/bond mix that is lower risk than 100% stocks?

We have some forum members who moved from stocks/bonds to money market funds during the Great Financial Crisis.... and they are still there!

[goingup]

Yes this is the perfect time to take a break. I've been all stocks for 37 years and turn 60 this year. After the huge gains the last 2 years, I moved all to money market last month. I'm taking some time out to read all the great advice on these forums. I'll figure out my AA and move back in later this year. If there's a big correction, nice to be on the sideline. If not, I'll have my new plan as I head to retirement. I believe now more than ever do what's the least stressful and if moving to a low risk position achieves that, why not.

Heading into retirement many here and elsewhere dial back risk. It's not advisable to sell everything and go to the sidelines. At age 60 you likely have 2 or more decades of living. Sitting in all cash will not keep up with inflation long-term.

Having read posts on this forum for many years, I suspect once you rush to to the sidelines you'll be sitting the bench for many years.

[tibbitts]

We have some forum members who moved from stocks/bonds to money market funds during the Great Financial Crisis.... and they are still there!

I'll guess that while many people did bail out during the GFC, probably most of the forum members - at least the ones who didn't get back in - aren't still here.

[thedaybeforetoday]

Actually, money market funds have "broken the buck" before, in 1994 and 2008. So while interest may theoretically go to %0, the value of each share in the money market fund has gone below $1/share in the past, thus interest isn't the only factor that determines the value of the funds in VMFXX.

So will you lose less in a money market fund if the economy crashes. Maybe. Probably.

That said, as others have pointed out, the inflationary risks of such a move as going to all cash seem more probable and realistic, than the scenario one could imagine that would be behind a move to all cash.

Three cases in total in 50+ years is not a risk worth considering.

One in 1978 because the fund invested in average maturities of 2 years instead of the 30-90 days noted in the prospectus. This resulted in $0.94/share instead of $1.00. Essentially, this was fraud, though not technically given the rules are the time.

The one in 1994 was due to investing in adjustable rate securities and saw its NAV to to $0.96/share. This was an institutional fund. Retail investors weren't affected.

Finally, Lehman Brothers bankruptcy resulted in the Reserve Primary Fund going to $0.97/share. Ultimately, the fund was dissolved at $0.991/share -- less than a penny loss.

Since 2008, rules have changed both for government money funds and funds targets at retail vs institutions. You might as well buy personal lightning and meteorite insurance if you're concerned about a government MMF breaking the buck.

So while it's possible, the sizes of the potential losses are relatively small. Most people underestimate how close to financial meltdown we were in 2008.

Understood to be highly unlikely, however I wasn't responding regarding the likelihood, but rather to the poster's comment I included in my response that perhaps you missed:

"It's a settlement account, the worst that can happen is earning 0% interest."

Obviously, as you pointed out, with historical references, %0 interest isn't actually the "worst that can happen", which was also my point.

I also wasn't bringing into the discussion how harmful, from a financial standpoint, the "worst that can happen" would be nor the likelihood of such a scenario; both hypothetical and different, (with high potential to be rabbit hole) discussions, I wish to avoid.

[BitTooAggressive]

I'm in my 50's and currently have around 600k between a Traditional and Roth Ira on Vanguard. I've been a bit worried lately about the economy collapsing [unnecessary comment removed by admin LadyGeek]. My thinking is that I could simply sell all of my holdings and let the cash sit there in the settlement account. According to what I see on Vanguard, doing so would not count as a distribution so there would be no tax implications or penalties. The current interest rate of the settlement account is 2.75% so while it's not anything great, it's better than losing a bunch of money if my fears are realized. Once I felt good about things, I'd buy back into the funds I currently hold.

So, am I just being dramatic or is this something that sounds reasonable to be considering? Please don't make your replies political, I'm not here to debate politics or try to start a fight.

Thanks!

Put all your money in gambling, energy, tobacco and alcohol stocks. People will still do that after the collapse.

[yzy]

Yes this is the perfect time to take a break. I've been all stocks for 37 years and turn 60 this year. After the huge gains the last 2 years, I moved all to money market last month. I'm taking some time out to read all the great advice on these forums. I'll figure out my AA and move back in later this year. If there's a big correction, nice to be on the sideline. If not, I'll have my new plan as I head to retirement. I believe now more than ever do what's the least stressful and if moving to a low risk position achieves that, why not.

Why did you move from 100% stocks to 0% stocks BEFORE you read all the great advice on these forums?

It all started a year ago with a conversation with the Fidelity rep. He asked "In the model, why did you put 67 as retirement age?" After I replied doensn't everybody use FRA, he said "You can retire whenever you feel financially sound, age has nothing to do with it." That hit me like a truck, I had been save save save, 100% stocks, never waver when the market crashed for 37 years. As I reflected more on that conversation, I came to accept that I won't work forever and I need to move to a more conservative AA and I need to break my addiction to 100% stocks, so I went all MM. Feels like I just got off the 37 year sprint and now I'm taking my time to find the next phase of my investment life.

[Fireishere]

Why did you move from 100% stocks to 0% stocks BEFORE you read all the great advice on these forums?

It all started a year ago with a conversation with the Fidelity rep. He asked "In the model, why did you put 67 as retirement age?" After I replied doensn't everybody use FRA, he said "You can retire whenever you feel financially sound, age has nothing to do with it." That hit me like a truck, I had been save save save, 100% stocks, never waver when the market crashed for 37 years. As I reflected more on that conversation, I came to accept that I won't work forever and I need to move to a more conservative AA and I need to break my addiction to 100% stocks, so I went all MM. Feels like I just got off the 37 year sprint and now I'm taking my time to find the next phase of my investment life.

I noticed that you’re a new member here so warmly welcome to the forum. I suggest you to start a new thread if you want to get help and opinions to your situation. Please, read this before posting (info how to ask portfolio questions): viewtopic.php?t=6212

[YangtzeCruiser]

I'm in my 50's and currently have around 600k between a Traditional and Roth Ira on Vanguard. I've been a bit worried lately about the economy collapsing [unnecessary comment removed by admin LadyGeek]. My thinking is that I could simply sell all of my holdings and let the cash sit there in the settlement account. According to what I see on Vanguard, doing so would not count as a distribution so there would be no tax implications or penalties. The current interest rate of the settlement account is 2.75% so while it's not anything great, it's better than losing a bunch of money if my fears are realized. Once I felt good about things, I'd buy back into the funds I currently hold.

So, am I just being dramatic or is this something that sounds reasonable to be considering? Please don't make your replies political, I'm not here to debate politics or try to start a fight.

Thanks!

I think you're being afraid, which is different from being dramatic. As for stupid, moving your money into an account paying 2.75% seems like a stupid move when you could put that cash in a money market fund or purchase short-term Treasuries paying 4%+.

Looking at 20-year periods starting on Jan 1, there has never been a 20-year period in which the S&P 500, with dividends reinvested, has failed to beat inflation as measured by the CPI-U. No guarantees that this record will hold into the future, but if you're not going to need X% of that 600K for the next 20 years, leaving that portion of the money invested in the market seems like a better bet than the path forward you've laid out.