When investors decide to close out their riskier positions and move into “cash”?, they don’t actually go to the bank and get a stack of twenties. Most just sell their stocks and let their broker sweep the proceeds into a money market fund which, they assume, is the same thing as cash because it holds high-quality short-term commercial paper that almost never defaults.
That pleasant assumption breaks down as soon as you look at a typical money market fund’s holdings and see that it owns, among other disturbing things, a lot of European bank debt.
But at least you can get your money out with a mouse click, right?
Well, maybe not. Apparently the Fed, cognizant of the potential weakness of the money fund system, is considering withdrawal limits:
I appreciate the post. Reminds me not to keep to much in my PA tax-exempt money market fund.
Thanks to the PP I moved a lot of it to SHY and t-bills in 2010.
FYI, Vanguard's treasury money market fund (closed to new investors) just increased their expense ratio.
[quote=Vanguard]
As of 08/31/2012, the expense ratio on your Vanguard Admiral Treasury Money Market Fund has increased from 0.11% to 0.12%, increasing its cost to you.[/quote]
dualstow wrote:
FYI, Vanguard's treasury money market fund (closed to new investors) just increased their expense ratio.
Vanguard wrote:
As of 08/31/2012, the expense ratio on your Vanguard Admiral Treasury Money Market Fund has increased from 0.11% to 0.12%, increasing its cost to you.
Wow. I am sure it's happened before but I can't remember the last time Vanguard made even a token increase in expense ratios.
Trumpism is not a philosophy or a movement. It's a cult.
dualstow wrote:
FYI, Vanguard's treasury money market fund (closed to new investors) just increased their expense ratio.
Vanguard wrote:
As of 08/31/2012, the expense ratio on your Vanguard Admiral Treasury Money Market Fund has increased from 0.11% to 0.12%, increasing its cost to you.
Wow. I am sure it's happened before but I can't remember the last time Vanguard made even a token increase in expense ratios.
Since it's closed, I'm sure the costs have risen as people have removed their money from it and no new money has come in.
Q: “Do you have funny shaped balloons?”
A: “Not unless round is funny.”
MediumTex wrote:
Since it's closed, I'm sure the costs have risen as people have removed their money from it and no new money has come in.
If that's the situation, then I would have thought that Vanguard would choose to open VMMXX back up to new investors to push the costs back down rather than raise the expense ratio. Vanguard supposedly prides itself on being a leader in rock-bottom ERs, so raising the ER of any Vanguard fund is a pretty big deal and goes against the grain of their minimum-ER philosophy.
If Vanguard's concern is that opening VMMXX back up to new investors would drive down Treasury yields even further (I believe that's why they originally closed it), then so be it; it shouldn't be Vanguard's concern to attempt to manipulate market yields. They should be more focused on the thing they actually have direct control over: their own fund's ER.
The 1-month T-bill yield is .07% ( http://www.treasury.gov/resource-center ... data=yield ) which is less than Vanguard's, or anyone else's expense ratio. So I expect that Vanguard is subsidizing VMMXX to prevent it from breaking the buck. Which is contrary to Vanguard's philosophy of self-sufficient funds and would cost the Vanguard mothership quite a bit. So I can't blame them for trying to shrink the fund to minimize the damage. I hope that, once interest rates return to more normal levels, the fund will go back to operating as usual.
Vanguard wrote:As of 12/28/2012, the expense ratio on {the} Vanguard Admiral Treasury Money Market Fund has dropped from 0.12% to 0.1%, lowering its cost to you.
Quite a tiny move anyway. Not sure what's going on there, except -- like with the change of a few dollars in spread for a gold dealer -- it means more to them than it does to us little guys.
Last edited by dualstow on Fri Dec 28, 2012 8:55 am, edited 1 time in total.
When investors decide to close out their riskier positions and move into “cash”?, they don’t actually go to the bank and get a stack of twenties. Most just sell their stocks and let their broker sweep the proceeds into a money market fund which, they assume, is the same thing as cash because it holds high-quality short-term commercial paper that almost never defaults.
That pleasant assumption breaks down as soon as you look at a typical money market fund’s holdings and see that it owns, among other disturbing things, a lot of European bank debt.
But at least you can get your money out with a mouse click, right?
Well, maybe not. Apparently the Fed, cognizant of the potential weakness of the money fund system, is considering withdrawal limits:
Given all this...for taxable cash, who here opts to buy T bills in Treasury Direct instead of treasury funds or bills/bonds through a brokerage? I've wondered if the safety of treasuries would be compromised by the fact that in order to get the money out, you have to go through a money market-type sweep account. That wouldn't apply to TD.
I recall that Harry Browne in one of his books explained that he kept his cash in a treasury money market that let him write checks directly out of the fund. Are there any options like that around? I thought everything we've discussed on the forum (SHY, SHV, etc) has to be bought through a brokerage.
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sophie wrote:
Given all this...for taxable cash, who here opts to buy T bills in Treasury Direct instead of treasury funds or bills/bonds through a brokerage? I've wondered if the safety of treasuries would be compromised by the fact that in order to get the money out, you have to go through a money market-type sweep account. That wouldn't apply to TD.
I recall that Harry Browne in one of his books explained that he kept his cash in a treasury money market that let him write checks directly out of the fund. Are there any options like that around? I thought everything we've discussed on the forum (SHY, SHV, etc) has to be bought through a brokerage.
I hold all my "deep" cash in IBonds and TBills directly at Treasury Direct that are not part of a monthly purchase or re-balance event. In my opinion this is the purest way to follow the cash guidelines, but again, just my opinion.
As for the writing a check part, I believe Vanguard allows you to do this. I however, have never done it, because the electronic transfers to and from my brick and mortar works just fine.
“Let every man divide his money into three parts, and invest a third in land, a third in business and a third let him keep by him in reserve.� ~Talmud
Bean wrote:
I hold all my "deep" cash in IBonds and TBills directly at Treasury Direct that are not part of a monthly purchase or re-balance event. In my opinion this is the purest way to follow the cash guidelines, but again, just my opinion.
Same here. IMO, it is the equivalent to physical gold, harder to buy and sell, but the most pure.
