Vanguard Treasury Money Market Fund lowers initial minimum

TheShadow

https://www.sec.gov/Archives/edgar/data/891190/000168386320015018/f7596d1.htm

(VUSXX)

497 1 f7596d1.htm VANGUARD TREASURY MONEY MARKET FUND 497
 
Vanguard Treasury Money Market Fund

Supplement Dated December 10, 2020, to the Prospectus and Summary Prospectus Dated December 20, 2019
Effective immediately, the investment minimum for Vanguard Treasury Money Market Fund (“Fund”) is lowered from $50,000 to $3,000. All references to the Fund’s minimum investment amount are hereby updated to reflect the new investment minimum.

  © 2020 The Vanguard Group, Inc. All rights reserved.
Vanguard Marketing Corporation, Distributor.PS 030K 122020

msf

This is good, if insignificant news. At 0.04% SEC yield, VUSXX is currently yielding 33% more than Vanguard's default money market fund, VMRXX (formerly a prime MMF, now a government fund). VMRXX is yielding 0.03%. And VUSXX is yielding a "whopping" double the 0.02% rate of Vanguard's other taxable MMF, VMFXX. On top of that, the fund is virtually 100% exempt from state income taxes.

Okay, I'm being a bit flippant here. But some people want the absolute highest measure of safety, and that comes when invested purely in Treasuries (or your mattress). Here is an extensive piece describing the differences between the types of government MMFs.

https://www.wellsfargoassetmanagement.com/assets/public/pdf/insights/investing/a-guide-to-government-money-market-funds.pdf

wxman123

In the super safe world one step beyond MMFs I would have to think that VWSUX would be one of the best bets. Interested in what others think.

Observant1

I use VUSFX in lieu of a MMF.

wxman123

Observant1 said:

I use VUSFX in lieu of a MMF.

I was thinking of starting a new topic on just this issue. I know in my head that VUSFX is virtually certain to be a better investment than a high yield cash account yielding around .66% these days. It's tax free, has a slight negative correlation to the stock market, and never had a down year since inception in 2001. I can also definitely withstand it's max drawdown of 0.65%. AND YET, my heart won't let me take my dedicated cash position and move it over to VUSFX. Back in the day, when you could still get some yield on cash this was not such a problem, but now, what's a fella to do?

Observant1

VUSFX is a taxable fund with an inception date of 02-24-15.
The fund's largest monthly loss was -1.08% during this past March.
Since 2016, VUSFX has generated only two monthly losses (other loss was -0.05%).

wxman123

Observant1 said:

VUSFX is a taxable fund with an inception date of 02-24-15.
The fund's largest monthly loss was -1.08% during this past March.
Since 2016, VUSFX has generated only two monthly losses (other loss was -0.05%).

Correct, my posts were in reference to the tax free fund, VWSUX, but I actually own both and use both as you do, for a near cash alternative. I just can't pull the trigger completely and make either a really large position thought it's probably not the best investment decision to keep much in real cash these days.

msf

Max drawdown of VWSUX was 3% between March 9 and March 20.
Max drawdown of VUSFX was 1.4% between March 11 and March 20

Vanguard Short Term Tax-Exempt Fund's inception was Sept 1, 1977. In 2001, Vanguard added Admiral shares. Doesn't matter, the fund did not have a down year all the way back to 1977.

As far as pulling the trigger goes, the question is: what risk is of concern? IMHO, the risk is not one of temporarily seeing one's balance decline (" I can also definitely withstand [a] drawdown"), but of having made less than the alternative when the cash is withdrawn. This is why, e.g. one might look at monthly drawdowns rather than true day-to-day drawdowns.

The longer the time frame, the greater the risk becomes of making less money with the MMF. Conversely, when used as a checking account, the risk of making less money with an (ultra) short bond fund increases. So keep three months, six months, even a year's cash in a high yield savings account or a bunch of no penalty CD (which insures against the risk of yields dropping).

Longer than that and the risk of making less money in the bond fund is rather small. Even it it returns less it won't be that much less; on the flip side, the risk of substantially underperforming with the bank/MMF becomes significant.

wxman123

Thanks msf, very well thought out and I agree. Still, there is that nagging thought I have that "only cash is cash." My concern would be something totally unforeseen that causes a permanent and substantial loss of capital. I guess that's not really a real concern with a fund dating back to 1977 with no down years, but I still need to get past that mental block. ZIRP is getting me there.