Money Market Account - Vanguard?

Question

I have $15,000 that I would like to transfer to Vanguard. I heard about the 5.10% interest rate that Vanguard is paying for their "Prime Money Market Fund." However, I also read in their site the following:

"A money market mutual fund investment is **not insured** or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although a money market mutual fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in such a fund" ( https://flagship.vanguard.com/VGApp/hnw/FundsSnapshot?FundId=0030&FundIntExt=INT )


Does this mean that I can actually lose my money because their Money Market accounts are not insured? I wouldn't mind the risk of losig $10 but I wouldn't want to risk my entire money. Please help.

Answer 1

I have had a Vanguard Prime Money Market Account for years now, and I love it. I did a lot of research before choosing that place for my emergency funds, and I have never regretted it. PS-actually as of last month they're paying 5.22%.

It's true that money market funds are not FDIC insured because they are not cash--technically you're investing in treasury notes and overnight paper. Basically you are investing in ultra short term (overnight) bonds backed by the US government. Which is as safe as it gets. They simply put that as a disclaimer so people don't confuse their investment with cash at a bank.

But the only way you'll lose money in a money market is if the government defaults on its debt--ie refuses to pay back all the government bonds and notes outstanding. This will never happen. If it does, then we'll be in a total economic global meltdown, and you can be sure you'll have more problems than losing that $15,000 (plus money could become worthless like when Russia defaulted on their debt and people burned currency to stay warm and a loaf of bread cost barrels full of money).

In short, don't worry about your money market. It is pretty much the safest place you can put your money. I wouldn't trust the FDIC to pay you back in a global economic meltdown anyway.

Answer 2

Vanguard Money Market Accounts

Answer 3

Possible yes, probable no. Vanguard is a very reputable company (I have accounts with them). They, and all the Mutual Fund Companies, primarily use their money market accounts as holding places for clients money while waiting to invest in Mutual Funds. While the share value ($1.00) can drop the companies will not let it happen. Their reputation and future in the industry is dependent on people trusting them so they protect their money markets like a mother bear does a cub. Historically no MF company MM has ever lost money that I have heard of and I did try to find one. You should also be aware that the return can fluctuate. It is not guaranteed and moves with national interest rates but it is almost always higher than your local bank will offer. I feel safe with money held in one but you might want to research as you build the amount for an investment fund that will give a better return.

Answer 4

My personal opinion is that the odds of losing money in the Vanguard Prime Money Market Fund is extremely low. However, some people prefer to only invest in FDIC guaranteed programs You can consider HSBC or ING. You can also buy T-bills and other products from the U.S. Federal government at treasurydirect.gov. I will warn you that some institutions offer high "teaser rates" for short periods of time. The rate then drops lower after a month or so. See the links.

Answer 5

It is extremely unlikely that you would lose money in a Vanguard money market account. I think Vanguard is the best mutual fund company and I keep my spare cash in the Prime fund. If the money is stolen, it is insured up to $100,000 by the SIPC. The only way to lose money is if the value of the underlying securities goes down substantially. Large money market funds are so diversified and the securities they hold have such short maturities that this has never happened to any reputable fund. But it's not impossible, so they have to give the disclaimer.

Answer 6

Yes, it is a very remote possibility.

But even if the money market fund loses money, you will most likely not lose all your investment. A MMF can (in theory) "break the buck", meaning a share will be worth less than $1. That can simply mean a share becomes worth $0.99, a 1% loss. In the rare cases where this almost happened, the managing company (Vanguard in this case) usually absorbs the loss.

Answer 7

Money Markets are good for short term savings or an emergency fund. I like Vanguard Money Market Prime. With rates going down money markets will start to go down quickly since their average investment length is usually about 40 days. So each day higher investments mature and are replaced by lower investments. So keep an eye on short term CDs and if they are better put some into them. Money markets and CDs are not really good for investing or growing a retirement nestegg. They are safe but barely keep pace with inflation. For longer term growth you need to take some risk - that means stocks/stock funds. Your 401k is a great place to invest-even pretty savy investors would consider a target date retirement fund in their 401k. Outside the 401k you don't want to generate taxes so index stock funds would be best. Vanguard Total Stock market index, Total internation index funds are good choices. keep the bond funds in your 401k. I don't like paying for advice either - a fee only finacial planner might be a good choice for a one time review - he/she should get paid by your fee not by the products he recommends. If you want to go it alone you need to start reading and not relying on advice from me or here. The bogleheads site (see link)is a good one to read advice and even pose a question - they have pretty good advice, a reading list and will even comment on your questions. Good Luck

Answer 8

most bank cd's pay around 5% for 15000 and they are fdic! you could lose everything the other way. search online for bank cd rates

Answer 9

that's exactly what it means,, you earn a little more, but it's not guaranteed and neither is the rate