Vanguard Prime Money Market

[audreyh1]

Quote:

Originally Posted by pb4uski That's my point though.... with the money market regulatory reforms enacted in 2010 and 2014, MM funds are essentially the same as FDIC insured from a credit risk perspective.

Perhaps, but I don’t see it that way, as I know that if a bank fails how the FDIC/NCUA backstop works because there is direct routine (not emergency) government intervention and it’s been used successfully decade after decade, even through some severe financial crises.

We don’t really know how the newly reformed MM funds and investors will behave under extreme stress. It should be way better, but is as yet untested.

Quote:

Originally Posted by pb4uski Just curious brewer... why Redneck Bank when Vanguard Prime MM is paying the same rate?

He was simply explaining the options if FDIC insurance was a requirement.

[pb4uski]

So you see significantly more credit risk in a MM fund vs an FDIC insured account after reading post #7?

[audreyh1]

Quote:

Originally Posted by pb4uski So you see significantly more credit risk in a MM fund vs an FDIC insured account after reading post #7?

I simply don't consider them equivalent.

[l2ridehd]

Even a few basis point difference in MM funds is something to note and take advantage of, so ER are very important. Vanguard has the lowest ER of all of them. Even Schwab is lower then Fidelity. Why you ask? Because the yield on MM moves very quickly as noted by the 7 day yield. So vanguard with the lowest ER will follow the interest rate rise slightly ahead of all other MM funds and has so far always stayed that way. Also they are the only fund company to continue to lower cost, others do but only because they have to follow Vanguard.

I do maintain MM funds at Vanguard and Schwab. Schwab because their investor checking account provides an ATM card that works in any ATM any where in the world with zero fee's. And moving money from the MM to checking is instant on the web site. And all ATM fee's are reimbursed.

However if you are chasing yield there are better options then most MM funds. AT&T stock remains close to it's 52 week low with a yield of 6.12% with a PE under 20 so IMHO a very low risk and a good upside potential in stock price. I wouldn't put all my cash funds there, but putting 1/3 of them there moves your total yield up significantly with low risk and upside potential. I have been a buyer at 30 to 32 and a seller at 38 to 40 for the past 8 years. It has been a very profitable ride to the point I am plus if my current holding of the stock falls to zero. Again in total it a very small % of total holdings, about 1% as I try to keep 3% in cash. So 2% in MM funds at Schwab and Vanguard and 1% in AT&T stock. I also use a stop loss order at 30 for the stock but it has never hit since I have owned it. I know all the purests will consider owning stock and counting it as cash is a huge no no, but it has worked well for me.

[Dtail]

Quote:

Originally Posted by audreyh1 Another Reader often takes the opportunity to warn people that Fidelity MM funds have high expense ratios compared to say Vanguard. Of course this difference is simply reflected in the yields quoted when comparing Fidelity MM funds to Vanguard MM funds. The 0.26% difference in ER between SPRXX(ER of 0.42%) and VMMXX (ER of 0.16%) is mostly reflected in their respective yields of 1.86% versus 2.04%. The fact that the Fidelity makes up about 8 basis points of the difference in expense ratios as the yield difference is only 0.18% perhaps leads him/her to think that the Fidelity Prime MM is taking on more risk. It appears to be a complaint about Fidelity MM funds having high expense ratios as compared to their yields in general. Some of us don’t have Vanguard Brokerage Accounts and are instead comparing Fidelity MM yields and risks against high yield savings accounts and maybe 4 week T-bills. Note that CDs and high yield savings accounts aren’t required to publish expense ratios, so we don’t know what they are. All we can do is compare yields. MM funds, because they are mutual funds, are required to publish ERs, even though they target an unchanging $1 share price.

+1 Exactly.

[pb4uski]

Quote:

Originally Posted by audreyh1 I simply don't consider them equivalent.

We agree on that, but IMO the difference in credit risk is essentially imperceptible.

[Dtail]

Quote:

Originally Posted by l2ridehd Even a few basis point difference in MM funds is something to note and take advantage of, so ER are very important. Vanguard has the lowest ER of all of them. Even Schwab is lower then Fidelity. Why you ask? Because the yield on MM moves very quickly as noted by the 7 day yield. So vanguard with the lowest ER will follow the interest rate rise slightly ahead of all other MM funds and has so far always stayed that way. Also they are the only fund company to continue to lower cost, others do but only because they have to follow Vanguard.

I guess to me the net 6 basis point diff between Vanguard and Fido is not worth chasing, plus don't have any accounts at Vanguard.
I would not change Internet Banks for 6 bps either. Not sure many would either.

[audreyh1]

Andrews just created a 2.75% 9 month CD special. One per customer.

[Another Reader]

Quote:

Originally Posted by audreyh1 Another Reader often takes the opportunity to warn people that Fidelity MM funds have high expense ratios compared to say Vanguard. Of course this difference is simply reflected in the yields quoted when comparing Fidelity MM funds to Vanguard MM funds. The 0.26% difference in ER between SPRXX(ER of 0.42%) and VMMXX (ER of 0.16%) is mostly reflected in their respective yields of 1.86% versus 2.04%. The fact that the Fidelity makes up about 8 basis points of the difference in expense ratios as the yield difference is only 0.18% perhaps leads him/her to think that the Fidelity Prime MM is taking on more risk. It appears to be a complaint about Fidelity MM funds having high expense ratios as compared to their yields in general. Some of us don’t have Vanguard Brokerage Accounts and are instead comparing Fidelity MM yields and risks against high yield savings accounts and maybe 4 week T-bills. Note that CDs and high yield savings accounts aren’t required to publish expense ratios, so we don’t know what they are. All we can do is compare yields. MM funds, because they are mutual funds, are required to publish ERs, even though they target an unchanging $1 share price.

Given the focus on the ER's of equity funds here, I'm surprised at the complacency about money market fund ER's. Fidelity was forced to reduce the ER's on their index funds because of competition. With some pressure from the clients, my hope is that they will reduce the ER's on the MM funds. The largest part of my paper assets are at Fidelity, and I am spending a lot of time chasing treasuries and CD's to squeeze out the difference in ER's.

I agree that Fidelity is taking on more risk to squeeze out a little more yield. I noticed that as the gross yields started to diverge awhile back.

[brewer12345]

Quote:

Originally Posted by pb4uski Just curious brewer... why Redneck Bank when Vanguard Prime MM is paying the same rate?

Three reasons:

- I don't have an account with Vanguard and I don't want one
- FDIC insured is full faith and credit. MM is not. If they are paying the same and I have to open an account anyway, I will take the full faith and credit option.
- I can tell friends I am a (debit) card carrying redneck

[ExFlyBoy5]

Quote:

Originally Posted by pb4uski Just curious brewer... why Redneck Bank when Vanguard Prime MM is paying the same rate?

Because, who wouldn't want a check drawn on Redneck Bank?!?

And, they have history, too...

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Our family’s been in bankin’ since 1927, way before this here Interweb took over the bayou. We started Redneck Bank to give folks the best darn deal online — with higher interest, lower fees and a whole lot more fun.

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Redneck Bank is the Internet Banking Division of All America Bank, a well-respected country bank established in Mustang, Oklahoma in 1969.

[pb4uski]

Quote:

Originally Posted by brewer12345 Three reasons: - I don't have an account with Vanguard and I don't want one - FDIC insured is full faith and credit. MM is not. If they are paying the same and I have to open an account anyway, I will take the full faith and credit option. - I can tell friends I am a (debit) card carrying redneck

I see. Since I have a lot consolidated at Vanguard it is easier in my case and IMO the credit risk difference is negligible. My friends already know that I'm a redneck so no advantage there.

[brewer12345]

Quote:

Originally Posted by pb4uski I see. Since I have a lot consolidated at Vanguard it is easier in my case and IMO the credit risk difference is negligible. My friends already know that I'm a redneck so no advantage there.

Yeah. I may simply be lazy and dump short term funds in the Schwab prime fund at 1.88%. Unless I am bored, it may not be worth the time to open another account for 12 BP.