Author Topic: Should I keep this IRA?  (Read 1784 times)

mozar

  • Magnum Stache
  • ******
  • Posts: 2965
Should I keep this IRA?
« on: February 13, 2015, 04:47:30 PM »
This is what I have for my IRA:   
VMMXX   Vanguard Prime Money Market Fund 
Rollover IRA
0.16%   $1.00   

I think it's like a CD? Should I buy shares in an index fund?

Thanks.

Earthling

  • Guest
Re: Should I keep this IRA?
« Reply #1 on: February 13, 2015, 05:17:06 PM »
Mozar:

I stand ready to be corrected by the smarter folks here, which would effectively include everybody.

The Vanguard Prime Money Market Fund is a "settlement fund," which Vanguard explains is a "money market settlement fund [that] is used to pay for and receive proceeds from brokerage transactions." It is a holding account, in other words, from which you make your actual investments thereafter.

I make monthly deposits into Vanguard from my checking account; each of those deposits first goes into the Vanguard Prime Money Market Fund, then -- through a separate transaction(s) -- I buy ETFs, mutual funds, etc.

So I don't view the Vanguard Prime Money Market Fund as an investment (even if it pays nominal interest, and I admit to not knowing that but believe that it does not). Even if it pays nominal interest, and I don't think it does, it isn't like a CD (no term, not held by bank, etc.).

It instead tries to maintain a share value of $1 per, nothing more, nothing less. So holding money in a settlement account at a brokerage isn't going to advance your FI date. It instead is akin to putting money under your bed and praying inflation doesn't occur.

So, in my humble view, you need to start pulling money out of your Vanguard Prime Money Market Fund and start purchasing any of Vanguard's wonderful, low-cost investments. Each month, I plow money from my Vanguard Prime Money Market Fund into VTI, VXUS, BND, and VTIP. I rebalance monthly (via my monthly investments) to maintain an 80% equity/20% bonds balance. I rebalance not by selling, but by what I invest in each month. I'm 51 years old. I view equities as the sails and bonds as the ballast, even though at my age I should be 50-50 equities/bonds.

mozar

  • Magnum Stache
  • ******
  • Posts: 2965
Re: Should I keep this IRA?
« Reply #2 on: February 13, 2015, 05:54:55 PM »
Oh, OK.

seattlecyclone

  • Magnum Stache
  • ******
  • Posts: 4844
  • Age: 34
  • Location: Seattle, WA
Re: Should I keep this IRA?
« Reply #3 on: February 13, 2015, 06:33:05 PM »
Yes, a money market fund is generally a terrible place for long-term investments. You should expect it to perform about like a savings account. Buy a real index fund if you want your money to grow.