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Prime Money Market Fund question
Old 01-28-2014, 06:17 AM   #1
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Prime Money Market Fund question

I manage my IRA through vanguard and I had some questions about their Prime Money Market Fund. I just shipped some money into it to hold until I pull the trigger on putting it into my IRA.

Will Vanguard let me keep the account open (for holding purposes) if I only put like $1000 in it? I know I had to make the initial transaction of $3000 or more, but once I put that money into the IRA, will they let me keep that account open with only $500-$1000 in it?

Is the Prime Money Market Fund the only option I have to simply hold money in my Vanguard account (rather than Wells Fargo savings account) or are there other, maybe better options?

If someones in a helping mood, keep reading.

I'm 27 years old and 2013 will be my 3rd year making the maximum contribution to my ROTH IRA. 2011 and 2012 I purchased S&P 500 shares. This year I was thinking of maybe getting something different. What are my best options?
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Old 01-28-2014, 06:42 AM   #2
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Based on what I've read on forums, Vanguard is very inconsistent about its rules for its MM funds, so one can only try out things and see what happens.

For example, we have a balance of $0.00 in our MMfund, but at one time we had other fund dividends of less than $100 go into this fund without problem. We now just have the dividends go to our checking account. Other folks have said Vanguard didn't let them do what we did.

A few times a year, some folks get a warning message from Vanguard that they are below the minimum. We have never gotten that warning message despite being below the minimum often and for long times.

We are not big customers of Vanguard either and do not have "status". Our total value there is small as we prefer to keep most money elsewhere. So we should not be getting any special treatement from Vanguard.
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Old 01-28-2014, 07:23 AM   #3
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My experience is that you should be just fine allowing your balance to shrink below the minimum initial investment. I have a Prime MM account which used to have a significant balance, but now I keep it open with just $1 in it. I need it open because I've used it as a holding location for dividends from my other funds, but the negligible interest it's currently yielding makes it unprofitable to put large amounts there.

I've gotten warnings in the past from Vanguard about account balances being below the minimum, but the only situation that seems to happen is when they're about to convert Admiral shares to higher cost investor shares. For Prime MM that shouldn't be an issue.

As far as your question about where to put this year's Roth IRA contribution, you really should sit down and come up with a target asset allocation that fits your age and risk tolerance. The way you're phrasing the question makes me suspect that you're picking investments based on what you hope performs well in the coming year. Nobody is going to be able to tell you that, which is why financial experts recommend the sensible but boring strategy of picking a target allocation and then adding money to your investments in a way that will keep you close to your targets.
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Old 01-28-2014, 10:45 AM   #4
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I've never had Vanguard contact me that my balances are below the minimum. In my taxable account, this would rarely happen, but it is quite common in my rollover IRA. In that account, the Prime MM fund is constantly under the minimum.

Personally, I wouldn't worry about it much. I'm guessing the worse that would happen is Vanguard would contact you saying you are below the minimum. If that happens, then you can figure out if you need to move the funds elsewhere or up the balance.

To answer your other question, if you want to guarantee your principal a MM fund is the way to go. Vanguard offers a bunch of these, but since the yields are bad for all of them, I'd stick with the Prime MM fund to keep it simple.

I also agree with Karluk's response, it looks like you really haven't defined an AA. I'd recommend figuring out your AA and then invest accordingly. And as a side question: why S&P 500 instead of total US market?
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Old 01-28-2014, 11:08 AM   #5
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If you have an IRA or brokerage account with VG then your prime MM account is almost sure to be your "sweep" account into which dividends etc are paid. In this case I don't believe you need a minimum balance. (I never have more than a few $ in mine)
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Old 01-30-2014, 05:56 AM   #6
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As of right now I think 100% of my roth IRA is stocks. For 2011 and 2012 I purchased only SP 500 shares for my IRA. This is what I plan to do for 2013, though I have not contributed to it yet.

My current age is 27 and I made the maximum contributions to my roth IRA in 2011, 2012, (soon to be 2013). All of which are S & P 500.

If I am 27 now, shouldn't my asset allocation be 70-80% stocks?

Should I maybe purchase 50% stocks and 50% bonds this year (2013 for me) to get my asset allocation more on track?

What would be some bonds I should look into while using vanguard. What is another option for stocks if I don't want to buy individual stocks but also don't want to get SP 500 shares.

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Old 01-30-2014, 06:45 AM   #7
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My DW and I use VG Prime MM as a Brokerage sweep acct and to transfer funds into our Roth IRA. While we had sizeable balances years ago we have had less than $5 for the last few years. So far we have gotten no messages from VG regarding this subject.
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Old 01-30-2014, 07:05 AM   #8
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Hi Tyk,

Try this tool from Vanguard: "Get Your Mutual Fund Recommendation".
"It is better to have a permanent income than to be fascinating". Oscar Wilde
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