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Vanguard Federal Money Market Fund
Old 01-11-2012, 06:44 PM   #1
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Vanguard Federal Money Market Fund

Usually I am occasional lurker but I cannot resist asking a question and showing what I don't know. In reviewing my end of the year portfolio results (and I knew this before but waited), I see that the 403(b) money my wife and I put into a Vanguard Federal Money Market Fund several years ago is now getting zero income. I also see that the fund is now closed. So, I am obviously in need of some schooling!

So is the zero rate because the Federal Reserve rate is so low? And, is the fund closed because no one wants to put their money in it anyway??

It is a small portion of my portfolio and I probably will not need the money for several years. So, any recommendations as to a fairly conservative (safe) fund within Vanguard that draws some income? It has to stay in Vanguard because if taken out, I have to pay taxes on it. I am retired and 64.

While I am not losing money (except to inflation) and occasionally over the past few years, the modest income from the fund looked pretty good compared to my equity funds. However, it pains me to see no returns and maybe no returns for the forseeable future.

So, welcome advice and thanks in advance.

Bookman
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Old 01-11-2012, 06:56 PM   #2
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Psssst! Wellesley
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Old 01-11-2012, 09:36 PM   #3
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All money market fund rates are incredibly low. The Vanguard fund closed because Vanguard could not find enough investments that would pay enough to cover their costs. Places go out of business if they don't sell things for more than they can buy them for. Vanguard did folks a favor and closed the fund.

A couple of times in the last year, short-term Treasuries were priced such that folks lost money if they held them to maturity. How's that for deflation?

OTOH, my spouse has a money market fund available in her 401(k) which consists of funds wrapped in annuities. The return has been negative the past couple of years because the expense ratio and fees in her plan are high. Yes, you read that right: If anyone invested in the money market fund in her company's 401(k) plan, they lost about 1% per year.
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Old 01-11-2012, 09:42 PM   #4
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I thought most money market funds were offering a small return now, but I guess you found one that is not.

Probably the fund is not making enough return to pay its expenses and leave investors some gain. It is quite possible that Vanguard is lowering the expense charge temporarily to maintain a net zero return. And since this is costing them some cash, they have closed the fund so that they aren't losing more.

If your 403b has a stable value fund available that would be a good choice. Not sure if that's an option for 403b's or your particular situation. You may just be stuck with a zero or low return unless you accept higher risk.
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Old 01-11-2012, 10:07 PM   #5
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Psssst! Wellesley

I second the recommendation.
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Old 01-11-2012, 11:18 PM   #6
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For the tax-deferred account (403b), a stable value or short-term bond fund is a good substitute of cash.
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Old 01-11-2012, 11:45 PM   #7
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I second the recommendation.
Wellesley is of course is a very different animal than a money market fund. It really cannot substitute, although if all goes well and you do not need the money at an inopportune time some people may prefer it. But it is not magic.

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Old 01-12-2012, 06:18 AM   #8
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so many people on this site recommend wellesley. is it because of the long term overall gain or what is the main reason?
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Old 01-12-2012, 06:25 AM   #9
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frank, here is a discussion of the pros & cons of the Wellesley income fund: Wellesley - Thoughts on the Fund
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Old 01-12-2012, 06:29 AM   #10
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so many people on this site recommend wellesley. is it because of the long term overall gain or what is the main reason?
Good management, low cost, relatively low volatility, nice income, some growth, reliable, good long-term record of performance... a good one-stop shop for what many investors are looking for.
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Old 01-12-2012, 06:54 AM   #11
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Good management, low cost, relatively low volatility, nice income, some growth, reliable, good long-term record of performance... a good one-stop shop for what many investors are looking for.
It is a good fund. But the OP needs to take a look at the chart around 2008-2009. An unusual period of time, but one he needs to consider coming from a MM fund.

VWINX: Summary for VANGUARD WELLESLEY INCOME FUND- Yahoo! Finance
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Old 01-12-2012, 07:32 AM   #12
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It is a good fund. But the OP needs to take a look at the chart around 2008-2009. An unusual period of time, but one he needs to consider coming from a MM fund.

VWINX: Summary for VANGUARD WELLESLEY INCOME FUND- Yahoo! Finance
No question- it's definitely not a money market or stable value fund but I was answering why so many on the forum like Wellesley. Good fund for the right time horizon.
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Old 01-12-2012, 08:13 AM   #13
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I have some money with Van MM Federal. I lost 3.5% to inflation the way I figure it. My only reason for keeping the cash there is that I will use it in the years immediately following retirement to suppliment my income until SS starts, and to pay the health insurance premiums until Medicare starts.
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Old 01-12-2012, 09:45 AM   #14
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Money market funds not earning money are the flip side (directly or indirectly) of the low rates for borrowing money.

We too have our expenses for the next five or six years in a MM fund--the rest of the portfolio chugs along, a lot in pssst....
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