Closing of VG Treasury Money Market

[Red Rover]

I just got the notice from Vanguard that they are closing the Treasury Money Market fund to new investors. I'm self-employed and that's where I keep my emergency fund. My focus is on preservation of capital and keeping that money safe and sound vs. income right now. Do you think it's okay to leave the money in there or should I move it? If so, any suggestions where? Thanks.

 

[REWahoo]

I don't think it is a safety issue but an issue of essentially zero returns and Vanguard no longer willing to manage the fund at a loss.

http://www.marketwatch.com/news/story/low-yields-force-treasury-money/story

 

[FIREd]

I think that there is nothing to worry about. If your money is already in the Treasury MMF, leave it there. Of course, the reason they are closing it is because nowadays treasuries barely pay enough to cover the fund's operating expenses. So if you don't mind earning next to zero on your money, then it's OK to sit tight and do nothing. If you would like a chance to earn better yields, why not take a look at the Federal MMF. Not much more risk (100% government-backed debt) and a slightly better yield.

 

[Koolau]

From a non-expert on such matters:

It's my understanding that most fund closings (especially by VG) are due to factors other than "problems" within the asset class or the fund itself. Usually, funds close (to new investors) when they become TOO popular. So much money comes in that perhaps the fund doesn't believe it can adequately manage it. Again, I'm not an expert. In most cases, if you are already in the fund, you can still contribute, but YMMV.

Now let the experts tell you the whole story.

 

[W2R]

Vanguard's e-mail about this says (in part)(emphasis mine),

Vanguard has announced the closure of Vanguard[FONT=Arial, Helvetica, sans-serif]®[/FONT][FONT=Arial, Helvetica, sans-serif] Admiral™ Treasury Money Market Fund and Vanguard Treasury Money Market Fund to new accounts effective 4 p.m., Eastern time, on Monday, January 26, 2009. In light of the substantial decline in yields on short-term Treasury securities, this decision was made to protect the interests of current fund shareholders. Current shareholders of the two funds who invest directly through Vanguard may continue to invest up to an additional $50,000 per day, per fund account. Although we're taking this step, it is likely that the yields on Vanguard's Treasury money market funds will continue to decline to negligible levels if short-term interest rates remain as low as they are now.[/FONT]

My question is why would allowing new fund shareholders affect the interests of current fund shareholders? I don't get it. They're accepting a limited amount of new money from us old fund shareholders, so what's the difference? And by the way, why limit us to $50K/day?

Not that I'm going to be adding over $50K/day myself....

 

[clifp]

Vanguard's e-mail about this says (in part)(emphasis mine),


My question is why would allowing new fund shareholders affect the interests of current fund shareholders? I don't get it. They're accepting a limited amount of new money from us old fund shareholders, so what's the difference? And by the way, why limit us to $50K/day?

Not that I'm going to be adding over $50K/day myself....

I am guessing the Vanguard is looking a head to the days when people aren't willing to loan their short-term to Uncle Sam for free. When that time comes the there is probably going to be a run for the exits on Treasury bills and Vanguard doesn't want to be in position of having to satisfy redemption request when the value of short-term TBill is dropping.

The nightmare scenario for Vanguard is having to break a buck on Treasury Money Market. (Although I am pretty sure Vanguard would lose money rather than doing that).

 

[REWahoo]

(Although I am pretty sure Vanguard would lose money rather than doing that).

Along the same line, I'm thinking Vanguard is seeing the returns on this fund going from almost nothing to zero very soon. They don't want to manage this fund at a loss or continue to charge even a small management fee which would result in a negative return for the shareholders.

 

[W2R]

Thanks, clifp and REWahoo. That gives me a little more understanding of it.

I retreated to the Admiral Treasury MM fund last July, but have been thinking of maybe moving half of what I have in there to Vanguard's Prime MM since I am getting almost nothing presently.

 

[Hal3]

Vusxx

The nightmare scenario for Vanguard is having to break a buck on Treasury Money Market.

I am 100% VUSXX. Everything.

I have been thinking about moving to multiple FDIC insured accounts with local banks. I just don't want to have to deal with all the paperwork and extra fees.

Any thoughts on that?

Did anyone read that new prospectus they just sent out on VUSXX?

You all know what a worrywart I am.