simple question about a money market mutual fund

P

ProgrammerGuy

I'm looking at putting my money somewhere for about 1 to 7 months, and then I"m going to take it out. I'm looking at the
Vanguard Prime Money Market. ,VMMXX - when you look at the chart it seems like it trades like a stock where there is potential to lose value. How does this thing work. I'm looking and getting paid 5 ish percent with no risk.
 
A chart of a money market fund is usually a chart of the YIELD, not the NAV. Yes that can be misleading, but the money market funds are structured so that the daily NAV is "always" $1.00. I have never seen a NAV <> $1 but in the prospectus they always say they cannot guarantee that.

If you are in a high tax bracket, a municipal money market fund may be an option as well. Fidelity's AMT-free muni fund FIMXX (structured to avoid alternative minimum tax) yields 3.56% but it is tax-exempt. If you are in a 33% tax bracket that is equivalent to about 5.3% (or slightly more depending on what % of income is from your home state).
 
Go to http://www.treasurydirect.gov/

You can put your money in treasury bills for 30 days or 90 days and earn about 5% these days.

You just have to roll it over every month if you choose 30 days.

One advantage is that you don't pay state tax on this (only federal tax).

(I'm assuming you are in the United States.)
 
i just bought vmmxx through my broker. the beauty of these funds is that they are highly liquid vis-a-vis t-bills. but, the trade-off for me is that with t-bills i can still retain 93% margin with my broker, whereas with money-markets funds my margin is cut in half.
 
Quote from garbo:

Go to http://www.treasurydirect.gov/

You can put your money in treasury bills for 30 days or 90 days and earn about 5% these days.

You just have to roll it over every month if you choose 30 days.

One advantage is that you don't pay state tax on this (only federal tax).

(I'm assuming you are in the United States.)
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The most liquid and safe investment, indeed.
 
I agree!
Btw, you calculating the taxable yield at 1.521% ?
Again, with the ultra short time horizon, I agree with this. Especially if in the top brackets! Good one! I do this with my clients $ as we allocate it. It sits in a muni money market account until we move it into the portfolio.

Quote from Vorpal:

A chart of a money market fund is usually a chart of the YIELD, not the NAV. Yes that can be misleading, but the money market funds are structured so that the daily NAV is "always" $1.00. I have never seen a NAV <> $1 but in the prospectus they always say they cannot guarantee that.

If you are in a high tax bracket, a municipal money market fund may be an option as well. Fidelity's AMT-free muni fund FIMXX (structured to avoid alternative minimum tax) yields 3.56% but it is tax-exempt. If you are in a 33% tax bracket that is equivalent to about 5.3% (or slightly more depending on what % of income is from your home state).
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