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Vanguard's VMFXX: A Popular Money Market Fund for Short-term Cash

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Learn about Vanguard's VMFXX, a popular money market fund for short-term cash.

A graph showing the steady returns of Vanguard's VMFXX over the years.

Vanguard is one of the largest investment management companies in the world, managing over $7 trillion in assets. The company offers a wide range of investment products, including index funds, exchange-traded funds, and mutual funds. One of its most popular money market funds is the Federal Money Market Fund (VMFXX).

VMFXX is a low-risk investment option that is suitable for short-term cash. It invests in high-quality, short-term debt securities issued by the U.S. government, U.S. government agencies, and U.S. corporations. The fund aims to maintain a stable net asset value of $1 per share, making it a safe and reliable option for investors.

The fund is also available as a "cash sweep" option for investors who hold brokerage accounts with Vanguard. This means that any uninvested cash in the account is automatically swept into the VMFXX, where it can earn interest until it is needed for trading or other purposes.

They have a Federal Money Market Fund (VMFXX) as well as a Municipal Money Market Fund (VMSXX). As for which of these is better, it depends on the investor's tax situation and investment goals. VMSXX invests in short-term, tax-exempt municipal securities and is suitable for investors in higher tax brackets who are looking for tax-free income.

Many investors choose to hold their emergency cash fund in VMFXX because of its low risk and high liquidity. I have my emergency cash fund split between boring old Marcus for FDIC insurance and Vanguard for the VMFXX “cash sweep”. This allows them to earn a higher yield than a traditional savings account while still having easy access to their money.

In this article, I explain why smart investors who can put up with some inconvenience will keep short-term cash in something like VMFXX or another money market fund. The inconvenience comes from having to transfer money in and out of the fund, which can take a few days. However, the higher yield and lower risk make it worth the effort for many investors.

We've written a lot about how to efficiently hold cash here and get paid for bearish views (i.e. in Vanguard money market funds (VMFXX) or other similar options). Holding cash in a money market fund like VMFXX allows investors to earn a higher yield than a savings account while still maintaining a low level of risk.

Vanguard Federal Money Market Fund (VMFXX) is a popular money market fund with over $223 billion in assets under management, or AUM. The fund has been around since 1981 and has a long track record of stable returns. It is a good option for investors who are looking for a low-risk, short-term investment.

To my understanding, Vanguard's venerable (inception 1981) VMFXX Money Market Fund is significantly less than 100% US treasury bills/notes, which means there is some credit risk. However, the fund aims to invest in high-quality securities with short maturities, which helps to minimize this risk.

Vanguard has a Federal Money Market Fund (VMFXX) that is currently paying a 7-day SEC yield of 4.21%. It's standard for money market funds to report their yields on a 7-day basis, as this gives investors a good idea of the current yield they can expect to earn from the fund.

In terms of performance, VMFXX has delivered steady returns over the years. In 2020, the fund returned 0.79%, which is lower than the long-term average but still a positive return in a year marked by market volatility. The fund's expense ratio of 0.11% is also relatively low compared to other money market funds.

For the Vanguard Federal Money Market Fund, this percentage was 37.79% in 2022. Therefore, if you earned $1,000 in total interest from VMFXX in 2022, $377.90 of that would be considered taxable income. This is something to keep in mind when considering the tax implications of investing in a money market fund.

Overall, Vanguard's VMFXX is a popular money market fund for short-term cash. It offers a low-risk, high-liquidity investment option for investors who are looking to earn a higher yield than a savings account while still maintaining a low level of risk. However, investors should be aware of the tax implications of investing in the fund and should consider their investment goals and risk tolerance before investing.

vanguardvmfxxmoney market fundlow-riskshort-term cashliquidityhigh-quality securitiescredit risksec yieldtaxable income

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