If you want to invest in money market funds, I highly recommend you consider Vanguard.
First of all, I want you to know that I am not employed by Vanguard. If I’m investing in Vanguard’s Money-Market Fund, I will not receive compensation.
As you know, the stock market is volatile and many investors are currently investing in conservative vehicles such as money market funds, as they want to minimize capital risk and maintain liquidity. Currently, if you choose the right financial company that offers money market funds, you can earn a net profit of 4% or more.
As of the day I wrote this column (May 5), I have already invested heavily in the Vanguard Federal Money Market Fund (VMFXX), but I will not lose sleep from that investment. The SEC yield over the seven-day period is 4.24%, with an annual expense ratio of 0.11%. Rates may change daily, but their returns have been consistent over the last month.
A recent article in the Wall Street Journal shows respected journalist Jason Zweig in the headlines of his article. In the article, he pointed out, as an example, how respected financial companies use many techniques to avoid paying customers competitive returns.
I have invested in many products over 30 years and I have found that Vanguard is competitive with all the products it generally offers. Certainly, in the case of the Money Market Fund (VMFXX) they provide.
I have been investing in Vanguard money market funds for months and have made a mistake by investing small amounts of financial funds provided by major banks I had accounts. I bought a CD at this bank and they informed me that their money market funds are very competitive. The interest rates they provided were competitive with the Vanguards of the time, and the bank had an office very close to my home, which was convenient, so I decided to invest a relatively small amount in their fund. What they didn’t tell me was that banks could reduce the profits of money market funds at any time without notice to investors. When I saw the monthly statement a few months after making my first investment, they noticed that they reduced their returns to less than 1%. At the time, Vanguard’s return was over 6%. Needless to say, I withdraw all my investments and switched my investments to Vanguard.
As Zweig pointed out in his article, it is not uncommon for a respected financial institution to find a way to provide very poor returns in money market funds. Financial institutions should not assume they have a strong reputation for providing the highest returns on financial market funds. It is not uncommon for many financial institutions to currently offer returns of less than 1%.
When I read Zweig’s article, I contacted Vanguard through its “safe” messaging center to get more information about their money market fund. Below is the information they sent me straight away.
Vanguard’s Federal Money Market Fund (VMFXX) SEC yield over the seven days, with the fund’s return rate of 4.24%. The SEC yield of a money market fund is calculated by setting the daily income distribution over the past seven days into years. The calculation is the net expense ratio. As of December 20, 2024, VMFXX’s expense ratio is 0.11%.
Since writing this column, the SEC yield over the next seven days has been changed. You can see the current numbers on the funds page at vanguard.com. (You can move to it by entering the fund’s name into an internet search engine.) Vanguard calculates daily dividends by multiplying the fund’s daily fee (the shareholder balance for that day is called the “factory rate.” At the end of the month, the daily dividends are summed.
Conclusion: As long as there is substantial volatility remaining, it makes sense to maintain a substantial amount of conservative investment in your portfolio to protect your asset base. If you find that investing in money market funds makes sense for some of your portfolio mix, make sure your financial institutions aren’t using you. Research alternatives and take advantage of the best rates.
Elliot Raphaelson welcomes your questions and comments at rapelliot@gmail.com.
