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curious Vanguard item
Old 04-10-2016, 10:18 PM   #1
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curious Vanguard item

How about this?

The expense ratio for my Vanguard Prime Money Market Account, VMMXX, (which I MUST use) is 0.16%.

The expense ratio for my Vanguard Small Cap Value Admiral Fund, VSIAX, is 0.09%, as is their ETF, VBR.

Does this make sense?
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Old 04-10-2016, 10:51 PM   #2
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Originally Posted by Ed_The_Gypsy View Post
How about this?

The expense ratio for my Vanguard Prime Money Market Account, VMMXX, (which I MUST use) is 0.16%.

The expense ratio for my Vanguard Small Cap Value Admiral Fund, VSIAX, is 0.09%, as is their ETF, VBR.

Does this make sense?
Thanks for reminding me I have funds in that MM account I need to move out somewhere.
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Old 04-11-2016, 01:12 AM   #3
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Same here...although it is minimal.


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Old 04-11-2016, 07:52 AM   #4
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Does this make sense?
Even worse, when one subtracts the expense ratios from the paltry returns, one is likely losing money, not to mention inflation. Right or wrong, for these reasons, I just can't store emergency cash in money markets and have elected to put it in the riskier but highly-diversified Vanguard Target Retirement Income Fund. YMMV.
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Old 04-11-2016, 08:18 AM   #5
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Does this make sense?
It might.

The fixed income market isn't as efficient as the stock market. You can set up bots to buy and sell equities for an index. To buy and sell commercial paper (for the money market funds) you likely need to have a trader working the phones. Vanguard actually has purchase fees on some of its fixed income bond funds to compensate for this.

In the CP market you also have to contend with constant maturities of your underlying assets versus owning equities that never mature. You also have to manage daily deposits and withdrawals that are far higher for a cash-like fund than for an investment fund.
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Old 04-11-2016, 08:23 AM   #6
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Even worse, when one subtracts the expense ratios from the paltry returns, one is likely losing money...
Published returns are after expenses (but obviously not inflation).

Many of us keep our emergency cash in an online savings account paying 0.9% to 1.2% rather than in MM funds which yield less.
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Old 04-11-2016, 08:24 AM   #7
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Originally Posted by Ed_The_Gypsy View Post
How about this?

The expense ratio for my Vanguard Prime Money Market Account, VMMXX, (which I MUST use) is 0.16%.

The expense ratio for my Vanguard Small Cap Value Admiral Fund, VSIAX, is 0.09%, as is their ETF, VBR.

Does this make sense?
They'll fix that for you when you get converted and MUST use the Federal Money Market fund. Of course, that's at 0.11%, so you are still 0.03% off your target.
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Old 04-11-2016, 08:32 AM   #8
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I think it makes plenty of sense. It's expenses.

A MM fund has a high amount of turnover and transactions. It has to only own things that are near cash and have maturities of less than 90 days. The average maturity is probably closer to 55 days. That means 600% turnover in a year.

Contrast that with an index fund that may have less than 10% turnover in a year.

Also, look at total assets under management,
VMMXX ~ $140 Billion
Small-cap value index ~ $16 Billion

So that's quite a few billions of turnover every year for VMMXX.

And don't forget check-writing and all those other transactions. Indeed, for every transaction in something like an index stock fund at Vanguard, there is probably at least a half transaction on average in the money market fund because folks tend to funnel money through the money market fund going from and to the stock index funds.
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Old 04-11-2016, 09:07 AM   #9
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And don't forget check-writing
Wow, I totally did forget about checks. That's still a thing?
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Old 04-11-2016, 10:17 AM   #10
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Wow, I totally did forget about checks. That's still a thing?
Yes; my 88 year old grandmother still sends me a $5 check for my birthday every year.
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