Vanguard Money Market: A Great Place For Your Cash Market

Vanguard Money Market: A Great Place For Your Cash Market

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There exist different ways of investing in mutual funds that investors ought to be aware of. The Vanguard Money Market is a simple and easy way to invest in mutual funds. The Vanguard Money Market gives investors tools to help them to be successful.

A diverse range of services are available like investing in bonds, ETFs, IRA, 401k’s, CDs, and more. Vanguard even makes college savings funds available, complete with financial advisors that will help to create a successful investment strategy.

One of the most common uses for a Vanguard Money Market Fund is as a retirement portfolio. Vanguard Money Markets provide a simplified way of accumulating retirement savings while also generating higher yields than most other traditional money markets. For many of the same reasons, Vanguard Money Markets are also used as college savings accounts.

vanguard money market

Vanguard also offers comprehensive portfolio management tools to its users. This is an important feature that isn’t offered by most competitors.

With portfolio management tools, users can achieve full control over every transaction that ever occurs in their accounts, leading to complete transparency rather than requiring a user to put all of their trust in a broker or money manager.

Vanguard Money Market Funds come with advantages and disadvantages just like every other investment option.

While Vanguard Money Markets offer decent yields, you can pay out on a monthly or quarterly basis rather than annually. They come with little risk and they can also fail to keep up with inflation.

For this reason, long-term investors tend to look elsewhere when seeking big gains on a larger timeframe.

Types Of Vanguard Money Market Funds

A Vanguard Money Market Fund is a good option for those seeking a low-risk investment option. It’s well-suited to a short-term savings strategy, as it comes with higher interest rates and a less volatile share price.

In today’s financial environment, it’s tough to find such a desirable investment vehicle. With interest rates pushed to record lows (although central banks have begun raising rates slowly, they are still hundreds of basis points away from the historical average), many investors find themselves gravitating toward riskier, highly volatile investments in a desperate search for yield.

There are several specific types of Vanguard Money Market Funds.

The Vanguard Prime Money Market Fund (VMMXX) is taxed at both the state and federal levels. The Vanguard Treasury Money Market Fund (VMPXX) is only subject to federal tax. The Vanguard Tax-Exempt Money Market Fund (VMSXX) is exempt from federal taxes and only owes state taxes.

Vanguard Money Market taxes also vary by state. This is an important consideration to keep in mind when thinking about Vanguard Money Market Funds.

  • The Vanguard Prime Money Market Fund

The Vanguard Prime Money Market Fund is intended to serve as a superior alternative to holding cash in a traditional savings account (or under a mattress, for that matter). The main way in which the fund accomplishes this is by establishing a portfolio of high-quality, short-term assets.

Among these assets are things like U.S. Treasury Bills, Certificate of Deposits (CDs), and other money market assets. Every asset the fund makes is of the highest-ranking credit, while the average asset matures in about 39 days.

plenty of money bills

The Vanguard Prime Money Market Fund distributes income each month and constantly maintains a share price of $1.00. The fund tends to pay a lower yield because it invests in short-money market instruments. But the yield can vary significantly depending on interest rates.

The yield of the fund has been as low as 0.01% recently. But historically, the fund’s average return over the last forty years has been 5.18%. Once interest rates rise to normal levels, the yield of the Vanguard Money Market Fund ought to rise closer to that historic average.

You must deposit with at least $3,000 in order to invest in the fund. Investors can transfer money to and from their bank account online. In this way, the fund is intended to function much like a savings account while having a somewhat higher yield.

  • Advantages of a Vanguard Money Market Fund

There are many advantages to investing in a Vanguard Money Market Fund.

The fund keeps a share price of $1.00 at all times. This means there is almost no risk of losing your money. It also allows for great liquidity, as the shares can be redeemed for $1.00 per share at any time.

vanguard money market average

A Vanguard Money Market Fund pays higher yields than the average checking account, savings account, and short-term CDs. Even though the fund’s annual yield was about 0.55% in 2018, it’s still much better than what most savings accounts are offering at under 0.10%.

The fund pays out income to investors every month. This will make it even more attractive when interest rates normalize and is still preferable to waiting for an annual or quarterly payout.

But be wary. While a Vanguard Money Market Fund is generally a great place for your cash, there’s never 100% upside to anything in the investment world.

With that in mind, let’s look at a few potential drawbacks to investing in a Vanguard Money Market Fund.

  • Drawbacks of a Vanguard Money Market Fund

Money market funds don’t generate a whole lot of income. Dividend stocks and bonds have higher yields by comparison. Long-term investors who want more income can receive much larger payouts through the bond market and bonds don’t carry a whole lot more risk than money market funds.

two people discuss in front of the laptop

Even though the fund does generate a measurable income, its returns are not likely to keep pace with inflation.

Many investors miss this key point.

They see their balance in an account rising over time and think they must be making money.

But in reality, everything is relative.

When your money market fund account is only rising by 0.5% a year while inflation is running at 2% a year or more, you’re actually losing purchasing power overall.

  • Vanguard Money Market Portfolio Tools

Vanguard Money Markets also provide investors with a variety of tools for managing their portfolios. Every transaction can be monitored and all accounts can be tracked using portfolio management tools.

vanguard money market portfolio tools

Data that can be gathered from these tools can help investors analyze their financial actions and learn which investments are doing well and which ones are doing poorly. All the information is broken up into easily digested chunks that anyone can understand.

Using the online portfolio management tool, investors have the ability to make transactions at any time of day, any day of the week.

This makes using Vanguard Money Markets very convenient.

All transactions can be controlled by the investor. Investors can also receive quarterly or monthly statements, newsletters, tax forms, and trade confirmations.

For the more passive investor, Vanguard Money Markets provide an automatic investing tool. Once investors create a specific investment strategy, their accounts can be adjusted to make automatic trades defined by the user.  

Using the Vanguard Money Market portfolio management tools, investors are able to possess greater insight into the performance of their investments.

  • Vanguard Money Market Conclusion

In the end, it all depends on your goals and perspective. If you’re looking for small, safe, short-term gains, then a Vanguard Money Market Fund is a great place for your cash.

And while conservative investors will find the fund appealing under most other circumstances as well, those seeking higher yields will probably wind up investing most of their portfolios elsewhere.

person holding a mobile phone and bills

Think about it this way.

Say you have $10,000 that you are saving for a down payment on a house, your child’s college tuition, or a fantastic family vacation in the Hawaiian Islands.

You will need that money in six months to a year. You don’t want to put it into anything risky because you can’t afford to lose it.

But at the same time, you also don’t want to have it sit there and let inflation eat away at your purchasing power.

In a situation like this, putting that cash in a Vanguard Money Market Fund is a viable option. You will manage to generate some measurable income on that nest egg while having the peace of mind of knowing that it isn’t facing much risk at all.

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