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Why is VG Prime Money Market expense ratio so "high?"
Old 01-06-2013, 10:08 AM   #1
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Why is VG Prime Money Market expense ratio so "high?"

It's bad enough that yields are 0.02%, but I hadn't noticed until I did my annual detailed spreadsheet update that the VMMXX ER is 0.16%! So Vanguard is eating up 89% of the "fund" return with expenses! Ouch!

Don't get me wrong, I remain a Vanguard devotee but...most if not all my index fund ER's are less (my portfolio ER is 0.13%), why on earth would a money market fund have higher ER's?
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Old 01-06-2013, 10:17 AM   #2
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I don't what the yield before expenses is, but most MM funds have absorbing a lot of the expenses. I assume they have some fixed overhead cost, maybe the check writing feature is a big cost.
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Old 01-06-2013, 10:21 AM   #3
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I don't what the yield before expenses is...
Neither do I, but doesn't it have to be at least 0.18% if yield is 0.02% and ER is 0.16%?
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Old 01-06-2013, 10:34 AM   #4
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Neither do I, but doesn't it have to be at least 0.18% if yield is 0.02% and ER is 0.16%?
Should, but I was thinking if they are absorbing some of the expense, don't know the ER reported is before or after the absorption. At one time it was thought some MM funds might actually start charging a fee to hold your cash.
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Old 01-06-2013, 10:37 AM   #5
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It's bad enough that yields are 0.02%, but I hadn't noticed until I did my annual detailed spreadsheet update that the VMMXX ER is 0.16%! So Vanguard is eating up 89% of the "fund" return with expenses! Ouch!

Don't get me wrong, I remain a Vanguard devotee but...most if not all my index fund ER's are less (my portfolio ER is 0.13%), why on earth would a money market fund have higher ER's?
That yield should be after ER.

Yep, before long, MM funds may be charging us to hold our cash - or else we have to be willing to live with a "float" - i.e. a share value that occasionally drops below $1.
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Old 01-06-2013, 10:40 AM   #6
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correct, yields are after expenses
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Old 01-06-2013, 10:45 AM   #7
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That yield should be after ER.

Yep, before long, MM funds may be charging us to hold our cash - or else we have to be willing to live with a "float" - i.e. a share value that occasionally drops below $1.
+1

These days I only use my VG MM account as a sweep account into which the dividends go, and I immediately move them to my bank savings account, making a massive 0.8%.

Consequently the MM account is never more than $100 most of the year, and if the yield was before expenses then that sum would go down a few pennies a month instead of going up a few pennies.
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Old 01-06-2013, 10:56 AM   #8
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Quote:
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That yield should be after ER.
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correct, yields are after expenses
I thought my second sentence in #1 and post #3 acknowledged that. The question was why would MMF ER's be higher than almost all my index fund ER's? Seems counterintuitive to me...but I learn something every day.
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Old 01-06-2013, 11:00 AM   #9
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T
Yep, before long, MM funds may be charging us to hold our cash - or else we have to be willing to live with a "float" - i.e. a share value that occasionally drops below $1.
I understand the rationale for proposed new rules that would require MM funds to float, but as a practical matter I hope it can be avoided (through company efforts, pooled insurance, etc). The big advantage of these sweep funds, for me, is to avoid the paperwork and fuss of share price fluctuations/cap gains considerations.

These MM funds are presently not making the fund companies any money, and their operation is probably being subsidized from elsewhere in the company. I don't mind paying the ER, there's a lot more going on than meets the eye in the present environment.
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Old 01-06-2013, 11:03 AM   #10
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I bet the MM funds have a super high turnover, since they deal only in the shortest duration debt. Then add to that the number of investor transactions they have to deal with as a quick place to transfer money in and out of. That seems much more active than a simple buy and hold index.
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Old 01-06-2013, 11:05 AM   #11
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These days I only use my VG MM account as a sweep account into which the dividends go, and I immediately move them to my bank savings account, making a massive 0.8%.
NFCU's money market savings account offers interest rates of 0.40-0.55% and PenFed is 0.10-0.25%.

I don't know why Fidelity & Vanguard even bother.
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Old 01-06-2013, 11:41 AM   #12
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Of course Vanguard could do like Wells Fargo and provide a bank account that could be swept to (at all of .05% pa). But then Vanguard would aquire a new regulator if it owned the bank.
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Old 01-06-2013, 02:26 PM   #13
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Ally Bank's MM rate is .95% APY. Write up to 6 checks per month, no monthly fees, and an ATM card (no Ally ATM fees) that can be used to access the dough as often as you want.

Heck, that's better than the national average 3 yr CD rate (.55%) according to Bankrate.com.

But, for someone counting on the internal strength of the company's resources to prevent their MM fund from "breaking the buck" in a crisis, maybe Ally Bank's not the best choice.
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Old 01-06-2013, 06:34 PM   #14
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Ally Bank's MM rate is .95% APY.
In fact, their online savings account is also at 0.95%. It's a good deal.
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