Vanguard money market

Vanguard money market DEFAULT

Vanguard shifting prime money market fund to safer U.S.-backed investments

Changes are coming for risk-averse Vanguard investors who are parking cash.

Late next month, Vanguard will transition its $125.3 billion Prime Money Market Fund to a government money market fund, investing "almost exclusively" in U.S. government securities, cash and repurchase agreements backed by government securities or cash.

The fund will be renamed the Vanguard Cash Reserves Federal Money Market Fund, the firm said.

Money market funds often provide investors a safe haven to stash cash and get a little yield, as well.

We believe that the rewards of even the most conservatively managed prime funds are no longer worth the risk.
Chief Investment Officer at Vanguard

While some of these funds invest in government securities and cash, others — including prime funds — often buy commercial paper, which are short-term notes issued by companies.

"Vanguard investors prioritize capital preservation for their money market investments, and we believe that the rewards of even the most conservatively managed prime funds are no longer worth the risk," said Greg Davis, Vanguard chief investment officer, in a statement.

"We are committed to structuring and managing our money market funds prudently while preserving their safety and liquidity, and are confident these changes will best position the fund to continue to meet the expectations of our clients, while still providing a competitive yield over the long term," he said.

March shake-up

Vanguard isn't alone among managers backing out of a prime fund in recent months, said Pete Crane, president of Crane Data.

Northern Trust announced in May that it would stop taking new investments in its Northern Institutional Prime Obligations Portfolio and begin liquidation on July 10, according to a filing with the Securities and Exchange Commission. The fund had $829.5 million as of June 30.

These changes all follow the market havoc that went on this spring, said Crane.

As investors fled from prime money market funds in March, the Federal Reserve stepped in to provide the Money Market Fund Liquidity Facility to help funds meet those redemption requests.

Normally the funds would have had to sell some of their assets in order to cash out investors, but the funds grappled with illiquidity amid the coronavirus outbreak.

The point of this move was to stabilize the market and avert a repeat of the 2008 money market fund crisis.

On Sept. 16, 2008, the Reserve Primary Fund's net asset value fell from a steady $1 to 97 cents, thereby "breaking the buck." Institutional investors dumped the fund — which held bonds from Lehman Brothers — after the bank filed for bankruptcy.

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A series of regulatory changes kicked in afterward, including the imposition of liquidity fees and redemption gates, leading to an overhaul of money market funds through 2016.

The decision by asset managers to pull some of their prime funds this year is "all about March and the Fed support that's necessary to stabilize the market," said Crane.

Managers are concerned that this spring's shake-up in money market funds might lead to further regulatory changes, he said.

 "They probably would rather duck out of that debate and not be involved," Crane said.

Lower fees ahead

In addition to its fund announcement, Vanguard also said it would also make prime fund investors eligible for lower fees by reducing the investment minimum for its prime Admiral shares – its cheaper share class -- to $3,000 from $5 million,

Prime Admiral shares carry an expense ratio of 0.10%, compared to the 0.16% expense ratio on prime Investor shares, according to Vanguard.

Investors can swap to Admiral shares by visiting Vanguard.com. Those who don't make the change on their own will be automatically converted from September 2020 through next year.

Sours: https://www.cnbc.com/2020/08/27/vanguard-shifting-money-market-fund-to-safer-us-backed-investments.html

Vanguard Federal Money Market Fund;Investor

Watchlist

CategoryUS Govt Money Mkt
Portfolio StyleUS Govt Money Mkt
Fund FamilyVANGUARD FDS
Fund StatusOpen
Fund InceptionJuly 13, 1981
Manager

John C. Lanius

The Fund seeks to provide current income consistent with the preservation of capital and liquidity. The Fund also seeks to maintain a stable net asset value of $1.00 per share. The Fund invests in short term, high quality money market securities issued by US government agencies.

Front loadN/A
Deferred loadN/A
Max. redemption feeN/A
Total expense ratio0.11%
12 b-10.02%
TurnoverN/A
Alpha0.09
Beta0.00
Standard deviation0.08
R. squared0.04
Standard (taxable)$3,000
IRAN/A
Fund ReturnCategory1Index (Barclay US Agg)% rank in categoryQuintile rank
YTD0.01%0.02%-1.48%18%1
1yr0.01%0.02%-0.90%23%2
3yr21.02%0.74%5.55%4%1
5yr21.05%0.68%3.10%2%1
10yr20.55%0.34%3.10%3%1
  • 1US Govt MM Funds
  • 23, 5 and 10 Year Returns are Annualized

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Sours: https://www.marketwatch.com/investing/fund/vmfxx
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Put your cash to work

Bank deposits and CDs are guaranteed (within limits) as to principal and interest by an agency of the federal government.

Bank accounts can offer more liquidity, ATM access, and overdraft protection. You should consider all material differences before choosing to invest.

All investing is subject to risk, including the possible loss of the money you invest.

Bonds are subject to the risk that an issuer will fail to make payments on time and that bond prices will decline because of rising interest rates or negative perceptions of an issuer's ability to make payments. Investments in bonds are subject to interest rate, credit, and inflation risk.

All brokered CDs may fluctuate in value between purchase date and maturity date. CDs may be sold on the secondary market, which may be limited, prior to maturity subject to market conditions. Any CD sold prior to maturity may be subject to a substantial gain or loss. Vanguard Brokerage does not make a market in brokered CDs. The original face amount of the purchase is not guaranteed if the position is sold prior to maturity. CDs are subject to availability. As of July 21, 2010, all CDs are federally insured up to $250,000 per depositor, per bank. In determining the applicable insurance limits, the FDIC aggregates accounts held at the issuer, including those held through different broker-dealers or other intermediaries. For additional details regarding coverage eligibility, visit fdic.gov. Vanguard Brokerage imposes a $1,000 minimum for CDs purchased through Vanguard Brokerage. Yields are calculated as simple interest, not compounded. Brokered CDs do not need to be held to maturity, charge no penalties for redemption, and have limited liquidity in a secondary market. If a CD has a step-rate, the interest rate of the CD may be higher or lower than prevailing market rates. Step-rate CDs are subject to secondary-market risk and often will include a call provision by the issuer that would subject the investor to reinvestment risk. The initial rate of a step-rate CD cannot be used to calculate the yield to maturity. If a CD has a call provision, the issuer has sole discretion whether to call the CD. If an issuer calls a CD, there is a risk to the investor that the investor will be forced to reinvest at a less favorable interest rate. Vanguard Brokerage makes no judgment as to the creditworthiness of the issuing institution and does not recommend or endorse CDs in any way.

Vanguard Municipal Money Market Fund: 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 the 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. Vanguard Municipal Money Market Fund is only available to retail investors (natural persons). Vanguard Municipal Money Market Fund may impose a fee upon the 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.

Vanguard Cash Reserves Federal Money Market Fund and Vanguard Federal Money Market Fund: 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.

Vanguard ETF Shares are not redeemable with the issuing Fund other than in very large aggregations worth millions of dollars. Instead, investors must buy and sell Vanguard ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.

For more information about Vanguard funds, visit vanguard.com to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing.

Sours: https://investor.vanguard.com/investing/cash-investments

Overview of Vanguard Cash Reserves Federal Money Market Fund

What Is the Vanguard Cash Reserves Federal Market Fund (VMMRX)?

If you're looking to invest in highly liquid investment vehicles that come with short-term maturities, consider a money market fund. These mutual funds typically invest in cash, highly-rated debt securities, and cash equivalents. These funds were originally designed to offer liquidity, provide current income, and preserve an investor's principal by maintaining a fixed $1.00 share price.

Funds may face redemption restrictions and liquidity fees during times of financial duress, which makes the Vanguard Cash Reserves Federal Money Market Fund (VMMRX) a great choice for some investors. Read on to find out more about this fund and whether it's a good fit for your portfolio.

Key Takeaways

  • The Vanguard Cash Reserves Federal Money Market Fund (VMMRX) is a taxable, conservative investment option designed for the retail investor.
  • The fund is primarily invested in highly liquid securities with short-term maturities like U.S. Treasury bills and cash.
  • VMMXX is a great option for investors who need immediate access to cash or for long-term investors who want to offset riskier investments.

Understanding the Vanguard Cash Reserves Federal Money Market Fund

The Vanguard Cash Reserves Federal Money Market Fund Investor Shares (VMMRX) is a conservative investment option offered by The Vanguard Group—one of the world's largest equity and fixed income managers. The fund is taxable and is designed specifically for the retail investor.

Launched in 1975 and holds total assets of $127.5 billion as of Jan. 31, 2020. The portfolio contains 401 securities. The minimum investment is $3,000, and any additional investment after that is priced at $1 per share. The expense ratio is 0.10%, and there are no purchase or redemption fees. The fund is primarily invested in the following:

  • Yankee/Foreign Bonds: 59.5%
  • U.S Treasury Bills: 23.4%
  • U.S. Government Obligations: 9.2%

The yields of money market mutual funds are largely dependent on the interest rate environment, meaning their yields will likely rise as interest rates rise. So when interest rates rise, money market mutual funds like Vanguard's Cash Reserves Federal Money Market Fund become much more attractive to investors.

VMMRX is one of the money market mutual funds that saw its yield rise in 2018, with a distribution yield that rose from 2.07% in August 2018 to 2.16% during the same month in 2018. As of the end of January 2020, the fund's distribution yield was 1.68%. The drop in yield is normal and is primarily due to short-term interest rates, which are explained below.

Like all mutual fund money market funds, VMMRX is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC). Investors concerned about the lack of insurance may wish to consider a money market fund account offered by a bank since the FDIC insures those accounts up to $250,000.

Who Should Invest?

The Vanguard Cash Reserves Federal Money Market Fund carries a significant amount of cash, making it an incredibly liquid asset. Securities held in the fund are also highly liquid, with the average maturity sitting at 36 months. This makes the fund highly suitable for conservative investors whose tolerance for risk is low. It's also a great investment choice for anyone who may need quick access to money on a daily basis.

Investors with short-term investment horizons of one to three years may find VMMXX a suitable choice to keep their cash earning competitive rates.

That doesn't mean investors with longer-term investment horizons can't benefit from the fund. In fact, these investors may use VMMXX for the cash allocation of their long-term investment portfolios, using it as a complement to some of their other, riskier holdings.

Risks Associated with VMMRX

In the absence of a financial crisis, the risk of principal loss is minimal. The fund is set to continue to mirror the short-term interest rates available in the U.S. economic environment, so investors can expect to see the fund increase its yield when short-term interest rates begin to rise. Although this makes it a relatively stable investment with a low cost and monthly income, VMMRX does come with some pitfalls. Here are some of the most common risks associated with the fund which could hurt your investment:

Credit risk: You may experience a drop in security prices if issuers can't make the interest or principal payments. This risk, though, is very low, as the fund invests in high-quality securities.

Income risk: Any drop in interest rates will directly impact the income paid by the fund. That's because the fund relies heavily on short-term interest rates. As an investor, you can expect income risk to be higher because short-term rates tend to fluctuate over shorter periods of time.

Industry risk: A small portion of the fund invests in commercial paper and bonds, so if there are any problems or situations that affect an industry, it will translate to the fund's performance. For example, any risks associated with the financial services industry will affect the fund if it invests in securities invested by that sector.

Principal growth risk: Because the share price is restricted to $1 per share, there's very little chance that your principal investment will grow. The trade-off, though, is that you probably won't lose money either.

Sours: https://www.investopedia.com/articles/investing/042316/vanguard-prime-money-market-fund-worth-it-vmmxx.asp

Money market vanguard

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U.S. Gov't Money Market Fund 2.3% Vanguard, 2.0% Fidelity, July 2019

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