Are you looking for a safe place to stash your cash for retirement? Are you an investor with a high account balance (and not a beginner or active trader)? If you can answer yes to both of these questions, you may want to check out Vanguard’s Prime Money Market Fund for your retirement savings.
Who is Vanguard?
The Vanguard Group is an investment advisor based in Malvern, Pennsylvania, USA. As of 2018, it is reported that they have over $5.3 trillion in assets under their management. Vanguard offers brokerage services, variable and fixed annuities, educational account services, financial planning, asset management, and trust services.
What is A Money Market Fund?
Money market funds are fixed-income mutual funds that invest in high-quality, short-term debt. They are considered one of the safest investments you can make. Money market funds protect your cash from market risks, and if you’re in one of the highest tax brackets and investing outside of your retirement account, you may be able to reduce your tax exposure with a tax-exempt money market fund.
Money market investors buy shares in a fund, which in turn buys short-term debt from government, bank or corporate entities, such as U.S. Treasuries, certificates of deposit or commercial paper. Money market funds are popular because they can quickly be turned into cash or used to fund a new investment opportunity. Money market funds are considered a good place to park cash, because they’re much less volatile than the stock or bond markets.
How Will Vanguard Grow My Money?
Vanguard touts that they will let your money grow safely until you decide how to use it.
They utilize these basic principles in order to do that:
- Diversifying your investments. One mutual fund can invest in hundreds—sometimes thousands—of individual securities at once. So if any one security does poorly, the others are there to help offset that risk.
- Low costs. With a no-load mutual fund, you pay one (hopefully low) expense ratio—instead of racking up the commissions you’d pay when buying and selling individual securities yourself.
- Professional Management. Your fund is managed by experts who help insure your investments will get you the best possible return.
Here is a breakdown of the basics of Vanguard’s Prime Money Market Fund:
|Asset Class||Money Market|
|Category||Taxable Money Market|
|Product Type||Retail *
Retail money market funds are limited to individual investors and certain accounts, such as custodial accounts, whose beneficiaries are individuals.
These funds seek to maintain a stable $1 net asset value. They’re permitted to impose a liquidity fee or a redemption gate if their liquidity falls below regulatory limits.
|Expense Ratio (Updated 12/2018)||0.16%|
|Fund Advisor||Vanguard Fixed Income Group|
|Stock Trade Costs||Vary by assets invested in Vanguard funds and ETFs:
• Less than $50,000: $7 per trade for first 25 trades each year, $20 thereafter.
• $50,000 to $499,999: $7 per trade.
• $500,000 to $999,999: $2 per trade.
• $1 million to $4,999,999: First 25 trades each year are free, $2 thereafter.
• $5 million and up: First 100 trades each year are free, $2 thereafter.
|Options Trades||Vary by assets invested in Vanguard funds and ETFs:
• Less than $500,000: $7 + $1 per contract.
• $500,000 to $999,999: $2 + $1 per contract.
• $1 million to $4,999,999: First 25 trades each year are free, $2 + $1 per options contract thereafter.
• $5 million and up: First 100 trades each year are free, $2 + $1 per options contract thereafter.
|Account fees (annual, transfer, closing, inactivity)||No closing, inactivity or transfer fees.
$20 annual account service fee for all brokerage accounts and IRAs. Waived for clients who sign up for statement e-delivery.
|Tradable securities||• Stocks
• Mutual funds
|Commission-free ETFs||Approximately 1,800|
|Mutual funds||3,000+ no-transaction-fee mutual funds|
Is Vanguard’s Prime Money Market Fund FDIC-Insured?
Vanguard’s Prime Money Market Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC).
Investors concerned about the lack of insurance may wish to consider a money market savings account offered by a bank, since the FDIC insures those accounts up to $250,000.
What Are The Advantages and Disadvantages of Vanguard’s Prime Money Market Fund?
Here is a breakdown of the pros and cons of Vanguard’s Prime Money Market Fund:
- No or very low fees when your cash joins or leaves the fund.
- No account minimum (but you’ll need to start with $3,000 for their Prime Money Market Fund Account).
- There can be tax benefits, as some money market funds hold municipal securities that are exempt from federal and state taxes.
- Large mutual fund selection and over 50 commission-free ETFs.
- Helpful customer support.
- The fund distributes income to investors on a monthly basis.
- The low returns mean money market funds aren’t a great tool for building long-term retirement savings.
- Money market funds carry a risk of losing value.
- Sometimes people can confuse money market funds with money market savings. Money market fund deposits are not protected, while money market accounts are backed up to $250,000 per depositor by the FDIC.
- 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.
- High trade commissions ($7 per trade, sometimes higher).
- No trading platform or tools.
- Limited research and data.
How Do I Get A Vanguard Prime Money Market Account?
To sign up for Vanguard’s Prime Money Market Account, you can complete the process over the phone or online.
Vanguard’s Online Application:
- Visit https://investor.vanguard.com/mutual-funds/
- Click “Open Your Account Online“
- Select the type of account you would like to open
- Tell Vanguard how you plan to fund your account
- Enter your personal details
- Wait for Confirmation
Vanguard states that confirmation of account funding can take 1-2 business days, but once you are given the green light you can start making investments in stocks, bonds and ETFs through their online portal or over the phone – as well as set up automatic investments and withdrawals.
Vanguard also has a mobile app where you have the ability to check your account, transact, analyze your portfolio and conduct research. At this time, the mobile app unfortunately does not offer trading.
How Do I Contact Vanguard About My Prime Money Market Account?
You can contact Vanguard using any of the following methods:
- Call 800-888-3751 ; Monday through Friday 8 a.m. to 10 p.m., Eastern time
- Outside US: Call 610-669-1000
- You can send a secure email to Vanguard by logging into your account via: https://personal.vanguard.com/
- By U.S. Mail
P.O. Box 1110
Valley Forge, PA 19482-1110
- By registered, certified, or overnight mail
455 Devon Park Drive
Wayne, PA 19087-1815
Should I Open a Vanguard Prime Money Market Fund?
At the end of the day, the answer to the question of if you should open one of these accounts depends on your individual situation and the return you’d like to see on your investment. Our suggestions is that you should consider Vanguard Prime Money Market Fund as a short-term investment vehicle only.
The Prime Money Market Fund would probably work really well for you if you are a retirement investor with a relatively high account balance. You really can’t beat the company’s robust array of low-cost funds.
Investors who fall outside of that audience — those who can’t meet the fund minimums or want to regularly trade stocks — should look for a broker that better caters to those needs.
In the aftermath of the 2008 financial crisis, Kate found herself surrounded by friends and family who were concerned about the safety of their money and needed help navigating banks and bank accounts. Her desire to share her knowledge led to the development of BankProfessor.com