The Vanguard Prime Money Market Fund (NASDAQMUTFUND: VMMXX) is one of Vanguard's lowest-risk investment options. Best for short-term savings, the fund offers competitive interest rates and a stable share price. However, for investors seeking any acceptable level of long-term investment performance, it's generally best to look at other options.
What is the Vanguard Prime Money Market Fund?
The Vanguard Prime Money Market Fund is designed as an alternative to keeping money in cash, or in a savings account. The primary objective is to preserve investors' principal by maintaining a portfolio of short-term, high-quality assets. This includes CDs, short-term U.S. Treasury Bills, and other money market assets. 100% of the fund's investments are of top credit quality (in the top two possible credit categories), and the average maturity of the fund's assets is just 39 days.
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The fund maintains a share price of $1.00 at all times and makes income distributions on a monthly basis. Since the fund invests in short-term money market instruments, it tends to pay a relatively low yield, but it can fluctuate considerably depending on the interest rate environment.
As of this writing, the fund's distribution yield is 0.48%, but it has been as low as 0.01% in recent years. However, the fund's average return since its 1975 inception has been 5.18%. When interest rates normalize, the fund's yield should rise to a level closer to that historic average, and as you can see, there have been times in the past when the fund's yield was significantly higher than the average.
VMMXX Dividend Yield (TTM) data by YCharts.
The fund's current expense ratio is 0.16% and requires a minimum $3,000 initial deposit. For investors with extremely large stockpiles of cash ($5 million or more), the fund is also available in Admiral Shares, which have a lower 0.10% expense ratio. Investors have the ability to transfer money electronically to and from their bank account, so the fund is designed to be just as convenient as a savings account, but with a slightly higher yield.
Advantages
There are a few advantages to investing in the fund. To name a few of the best ones:
- Stability: The fund maintains a $1.00 share price. In other words, the risk of losing your investment principal is virtually zero.
- Liquidity: The shares can be readily redeemed for $1.00.
- Low cost: The fund's expense ratio is just 0.16%.
- Income: The Vanguard Prime Money Market Fund pays a better yield than most savings accounts, checking accounts, and short-term CDs do. Although the fund's current annualized yield is only about 0.50%, it's far better than the sub-0.10% returns many savings accounts are offering.
- Monthly income: The fund distributes income to investors on a monthly basis. This could become a more attractive benefit once interest rates normalize, but it's still better than having to wait for a quarterly or annual payout.
However, investors should consider the following drawbacks:
- Low yield: Compared with bonds and dividend stocks, money market assets don't pay very much. Investors who want income on a long-term basis can get significantly higher checks by investing in bonds, without taking on much more risk.
- Purchasing power decline: While the fund generates some income, it's important to point out that its returns are unlikely to keep up with inflation, especially in the near term. For example, if the inflation rate is 2% and the fund returns only 0.5%, your investment is actually losing 1.5% in purchasing power each year.
- No principal appreciation: The Prime Money Market Fund maintains a $1.00 share price, no more, no less. So, while you won't lose money, you don't have the potential to make any either.
Who should invest in the fund?
I'd recommend the Vanguard Prime Money Market Fund as a short-term investment vehicle only. For example, if you have $10,000 that you know you'll need in two months to pay for your kid's college tuition, the fund is a good way to ensure that you won't lose any of it, and to generate a little bit of income at the same time. Or, if you have some emergency savings and don't want to risk losing any of it by investing, this could be a good option.
As far as a long-term investment, I suggest that virtually 100% of all investors' portfolios be in either stocks or bonds (or funds that invest in them). Stocks provide the growth younger investors need, and bonds can provide the income retirees need without excessive risk. If you're retired and feel more comfortable with some cash, this could be a good option for a small percentage of your portfolio, but that's about it.
Matthew Frankel has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
FAQs
Vanguard Prime Money Market Fund will be reorganized into a government money market fund and renamed Vanguard Cash Reserves Federal Money Market Fund.
Is Vanguard Prime money market fund Safe? ›
Money market mutual funds are relatively safe from price volatility and typically covered by SIPC insurance through the investment firm.
Where is the best place to put your money right now? ›
Bank products and Treasurys are safest, corporate bond funds slightly less so. CDs and bonds are relatively low risk compared to stocks, which can fluctuate a lot and are high risk.
Which Vanguard fund has the highest return? ›
Fastest growing Vanguard funds worldwide in January 2023, by one year return. The fastest growing exchange traded fund (ETF) managed by U.S. asset management company Vanguard is the Vanguard Energy Index Fund.
Can Vanguard money market funds lose money? ›
Vanguard Cash Reserves Federal Money Market Fund and Vanguard Federal Money Market Fund: You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so.
Who owns the largest share of Vanguard? ›
Top 10 Owners of American Vanguard Corp
| Stockholder | Stake | Shares owned |
|---|
| BlackRock Fund Advisors | 14.78% | 4,371,823 |
| Dimensional Fund Advisors LP | 8.19% | 2,422,671 |
| The Vanguard Group, Inc. | 7.11% | 2,102,612 |
| Wellington Management Co. LLP | 5.32% | 1,572,438 |
6 more rowsAre Money Market Funds Safe? Money market funds invest in highly stable, short-term debt securities that are very low risk. As investments go, money market funds are generally considered quite safe, although they are not entirely risk free.
Is Vanguard money market better than savings account? ›
Most traditional savings accounts offer pretty nominal interest rates, so you may find that money market funds or MMAs are a better alternative, as they typically offer higher returns.
What is the safest investment for cash? ›
Overview: Best low-risk investments in 2023
- Short-term certificates of deposit. ...
- Money market funds. ...
- Treasury bills, notes, bonds and TIPS. ...
- Corporate bonds. ...
- Dividend-paying stocks. ...
- Preferred stocks. ...
- Money market accounts. ...
- Fixed annuities.
7% interest isn't something banks offer in the US, but one credit union, Landmark CU, pays 7.50% interest, though there are major requirements and stipulations. So, is it worth it?
Cash savings are always popular with people who want to put away a lump sum and earn interest over a long period of time. This can be a very good way to save for things, without taking on bigger levels of risk. Savings accounts are much safer, but how much interest you earn will come down to your bank's interest rate.
Where is the best place to put $10000? ›
7 Ways to Invest $10,000
- Max Out Your IRA. ...
- Contribution to a 401(k) ...
- Create a Stock Portfolio. ...
- Invest in Mutual Funds or ETFs. ...
- Buy Bonds. ...
- Plan for Future Health Costs With an HSA. ...
- Invest in Real Estate or REITs. ...
- Which Investment Is Right for You?
- The Best Vanguard ETFs of February 2023.
- Vanguard Short-Term Inflation-Protected Securities ETF (VTIP)
- Vanguard S&P 500 Index Fund ETF (VOO)
- Vanguard Emerging Markets Government Bond ETF (VWOB)
- Vanguard Value Index Fund ETF (VTV)
- Vanguard Total International Stock Index Fund ETF (VXUS)
Here are some of the best Vanguard funds for dividends.
- Vanguard Dividend Growth (VDIGX)
- Vanguard Utilities Index Admiral Shares (VUIAX)
- Vanguard LifeStrategy Conservative Growth (VSCGX)
- Vanguard Wellesley Income (VWINX)
- Vanguard Wellington (VWELX)
- Vanguard Intermediate-Term Investment Grade (VFICX)
If you're looking for stability, Vanguard Global Minimum Volatility Fund delivers. VMVFX is considered low-risk compared to its Morningstar category (global large-stock blend funds), and its beta of 0.7 implies it's 30% less volatile than the category benchmark.
What happens if Vanguard goes bust? ›
In the unlikely event that we become insolvent, your money and investments would be returned to you as quickly as possible, or transferred to another provider. This is because your money and investments are held separately from our own.
What is safer than money market fund? ›
Key Takeaways. Alternatives to money market mutual funds include high-yield savings accounts, money market deposit accounts, CDs, bonds, and bond funds.
Why am I losing money in my money market account? ›
If the interest earned is low enough and the fees for the account are high enough, you may lose money. Although money market accounts aren't subject to the ups and downs of the stock market, they may come with higher fees than other savings products.
What bank owns Vanguard? ›
Vanguard is owned by the funds managed by the company and is therefore owned by its customers.
...
The Vanguard Group.
| Type | Private |
|---|
| Products | Mutual funds Exchange-traded funds Broker Asset management Sub-advisory services |
| Revenue | US$6.936 billion (2020) |
| AUM | US$8.1 trillion (2022) |
| Number of employees | 18,800 (Jan 2022) |
7 more rowsThe top individual insider shareholders of Amazon are Jeff Bezos, Andrew Jassy, and Jeffrey Blackburn, and the top institutional shareholders are Advisor Group Inc., Vanguard Group Inc., and BlackRock Inc.
You can lose money in a money market account in a few indirect ways. For example, if the interest rates on the account fall, the value of your balance will also decline. This is because you will get less than what you initially deposited when you withdraw your money.
Are CDs safer than money market funds? ›
Both CDs and MMAs are federally insured savings accounts, so they're equally safe.
Which fund is most risky? ›
List of Best-high-risk-mutual-funds Risk Mutual Funds in India
| Fund Name | Category | Risk |
|---|
| Sundaram Equity Hybrid Fund | Hybrid | High |
| HDFC Dynamic PE Ratio FoF Fund | Other | High |
| Axis Gold Fund | Other | High |
| SBI Conservative Hybrid Fund | Hybrid | High |
7 more rowsClosing a fund is one way to slow or stop the flow of new money that the fund's manager must put to work. By closing the fund, its management has stopped one way it can increase its assets, or become larger. Why would a fund's management want this? It's done to protect the fund's investors.
Why are some Vanguard funds closed to new investors? ›
Key Takeaways
The biggest reason why a mutual fund company will decide to close its fund's doors is that the fund's strategy is being threatened by the fund's size. The decision to close a fund's doors to new investors could be to protect existing shareholders from stagnant or declining fund performance.
Is Vmmxx closed to new investors? ›
VMMXX is closed to new investors but the Vanguard Cash Reserves Federal Money Market Fund Admiral Shares (VMRXX (opens in new tab)), which has a lower expense ratio of 0.10%, is open to new shareholders.
What is the symbol for Vanguard Prime money market fund? ›
VMFXX-Vanguard Federal Money Market Fund.
