The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: fallstoclimb on April 08, 2016, 08:48:19 AM
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Hoping someone can provide some clarity here. When I contribute to my Roth IRA I always put it directly into my chosen fund (Target Retirement 2045) but there is also the option to contribute to the Prime Money Market fund.
We opened the Roths last year, are on pace to max both of them out this year and in future years, but since we opened them last fall we have lots of 2015 space left in both. I've been debating with myself all morning about how comfortable I feel moving some more emergency fund cash over before the contribution deadline.
I won't go into the details of our particular situation but it would make the decision easier if this settlement fund is a safe space to park some money for a little bit of time until we rebuild the emergency fund --- as long as there aren't many fees of course.
I do know that I could choose another Vanguard fund to contribute to that would be safer than the Total Retirement fund but I like to keep things simple & minimalist.
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It's like any other money market fund:
https://personal.vanguard.com/us/funds/snapshot?FundId=0030&FundIntExt=INT
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It's basically just uninvested cash. I don't know about VG, but Fidelity gives you an FDIC option, which basically means they just have money in an FDIC-insured deposit account at a regular bank. There shouldn't be any fees associated, but read the fine print.
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As others have said it's a cash fund, that earns little to no return. If you really wanted that safety net you could leave money in there. I regularly have between $20-$100 in my settlement and Prime Money Market because ETF's can only be purchased in whole shares (not true for mutual funds).
Personally, I would invest it. I would give you the same advice with what knowledge I have from your other posts. But that's for you to decide. Either way get it in your Roth so you max it out for 2015.
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Thanks for the help all!
I think I am just going to go ahead and directly invest the contribution. It seems silly to have money sitting in the money market account for a (albeit small) fee, when there's next to no chance of us needing to pull any out. I'm not that risk averse and we have other options.
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It seems silly to have money sitting in the money market account for a (albeit small) fee...
There's no fee. It pays minuscule interest just like a savings account.
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We use it as a place to dump dividends on a taxable account.
It can be handy for funding Vanguard as well... for instance if you were buying several different funds, you can do a single transfer into the MM account from your bank and then disperse from there.
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As others have said it's a cash fund, that earns little to no return. If you really wanted that safety net you could leave money in there. I regularly have between $20-$100 in my settlement and Prime Money Market because ETF's can only be purchased in whole shares (not true for mutual funds).
Personally, I would invest it. I would give you the same advice with what knowledge I have from your other posts. But that's for you to decide. Either way get it in your Roth so you max it out for 2015.
I just recently exchanged a fund for ETFs in my Roth. Do you have a hard time getting the exact $5500 max for the Roth when dealing with ETFs? This is my first time purchasing them.
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Short version: I treat money market funds as safe money, although technically it's not 100% safe.
Technically, a money market fund can lose money. But 99.9% of investment firms have eaten losses rather than panic their clients. The losses tend to be small, and cause really disproportional panic. Investment firms do not want these funds to lose money. Newer regulations may challenge that, by trying to "float" the rate and allow it to go negative if the short-term rates go negative. My guess is even then, investment firms will flaunt the regulations to keep their clients happy, and eat the losses.
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As others have said it's a cash fund, that earns little to no return. If you really wanted that safety net you could leave money in there. I regularly have between $20-$100 in my settlement and Prime Money Market because ETF's can only be purchased in whole shares (not true for mutual funds).
Personally, I would invest it. I would give you the same advice with what knowledge I have from your other posts. But that's for you to decide. Either way get it in your Roth so you max it out for 2015.
I just recently exchanged a fund for ETFs in my Roth. Do you have a hard time getting the exact $5500 max for the Roth when dealing with ETFs? This is my first time purchasing them.
No, but you will have a few dollars leftover in the prime money market account.
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As others have said it's a cash fund, that earns little to no return. If you really wanted that safety net you could leave money in there. I regularly have between $20-$100 in my settlement and Prime Money Market because ETF's can only be purchased in whole shares (not true for mutual funds).
Personally, I would invest it. I would give you the same advice with what knowledge I have from your other posts. But that's for you to decide. Either way get it in your Roth so you max it out for 2015.
I just recently exchanged a fund for ETFs in my Roth. Do you have a hard time getting the exact $5500 max for the Roth when dealing with ETFs? This is my first time purchasing them.
Another reason I do mutual funds instead of ETFs.
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As others have said it's a cash fund, that earns little to no return. If you really wanted that safety net you could leave money in there. I regularly have between $20-$100 in my settlement and Prime Money Market because ETF's can only be purchased in whole shares (not true for mutual funds).
Personally, I would invest it. I would give you the same advice with what knowledge I have from your other posts. But that's for you to decide. Either way get it in your Roth so you max it out for 2015.
I just recently exchanged a fund for ETFs in my Roth. Do you have a hard time getting the exact $5500 max for the Roth when dealing with ETFs? This is my first time purchasing them.
Another reason I do mutual funds instead of ETFs.
Yeah, my detail-oriented side really can't stand having a couple dollars leftover in the account not working for me. There's no logical reason why I should mind this when I typically keep a few thousand dollars sitting in a cash checking account, but it bugs me all the same!
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The standard procedure at Vanguard when you open a Roth IRA is that they automatically open a Money Market account to accept the primary transfer ($1500 minimum last I checked) before you invest in funds. Pretty much everyone with a Vanguard Roth account also gets a money market account opened the day they open the Roth account.
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As others have said it's a cash fund, that earns little to no return. If you really wanted that safety net you could leave money in there. I regularly have between $20-$100 in my settlement and Prime Money Market because ETF's can only be purchased in whole shares (not true for mutual funds).
Personally, I would invest it. I would give you the same advice with what knowledge I have from your other posts. But that's for you to decide. Either way get it in your Roth so you max it out for 2015.
I just recently exchanged a fund for ETFs in my Roth. Do you have a hard time getting the exact $5500 max for the Roth when dealing with ETFs? This is my first time purchasing them.
Another reason I do mutual funds instead of ETFs.
Yeah, my detail-oriented side really can't stand having a couple dollars leftover in the account not working for me. There's no logical reason why I should mind this when I typically keep a few thousand dollars sitting in a cash checking account, but it bugs me all the same!
It's different. Roth is legally limited (both adding and removing), tax-free, long-term growth, and retirement-focused. The few grand in the checking account is there to make sure I don't bounce a check, can pay the credit card bill, etc.
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So is that to say all Vanguard funds are necessarily Roths? Like the VTSAX?
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So is that to say all Vanguard funds are necessarily Roths? Like the VTSAX?
No, Roth is a type of account, it just holds things (money, bonds, securities, sometimes physical assets). VTSAX is a mutual fund you can buy and sell; one of the things that can go into a Roth (or traditional, or taxable) account.
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So is that to say all Vanguard funds are necessarily Roths? Like the VTSAX?
No, Roth is a type of account, it just holds things (money, bonds, securities, sometimes physical assets). VTSAX is a mutual fund you can buy and sell; one of the things that can go into a Roth (or traditional, or taxable) account.
Then I can only contribute $5500 a year to it, is that correct?
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You can contribute $5,500 to an IRA each year. There's no limit to the amount you can put in VTSAX.
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Think of VTSAX as something you own (because it is). There's no limit to how much you can own or buy as a person.
Because IRA accounts have special tax privileges, the federal government limits how much money you can put into one each year. You don't own an IRA, it's just an account. Naturally, this limits how much new stuff you can buy in that particular account.
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Think of VTSAX as something you own (because it is). There's no limit to how much you can own or buy as a person.
Because IRA accounts have special tax privileges, the federal government limits how much money you can put into one each year. You don't own an IRA, it's just an account. Naturally, this limits how much new stuff you can buy in that particular account.
So VTSAX I can contribute as much as I want, but on my vanguard page online it says "Roth IRA Brokerage", and the total amount is all that I have contributed to the VTSAX.
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Think of VTSAX as something you own (because it is). There's no limit to how much you can own or buy as a person.
Because IRA accounts have special tax privileges, the federal government limits how much money you can put into one each year. You don't own an IRA, it's just an account. Naturally, this limits how much new stuff you can buy in that particular account.
So VTSAX I can contribute as much as I want, but on my vanguard page online it says "Roth IRA Brokerage", and the total amount is all that I have contributed to the VTSAX.
A Roth (or Traditional IRA, or Rollover IRA) is just a bucket or container - like a savings or checking account. You put things INTO the account, like cash, or VTSAX (a mutual fund) or stocks or bonds.
Your Roth account is a type of IRA. You are able to put in $5,500 per year into any type of IRA, and can buy whatever fund or stock or bond you'd like once you put that money into the Roth IRA. But after you've put in that limit and done whatever you wanted (like buy $5,500 of VTSAX), you'll have to look at opening another type of account like a taxable brokerage account to put in any further money for investing. Taxable brokerage accounts don't have any limits to how much you put in, but the are after tax and non-tax deferred accounts so you'd need to make sure that anything invested in there is tax efficient.
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Sorry for resurrecting an old thread but I thought the Vanguard Money Market Accounts (VMFXX and VMMXX) had pretty decent returns at 1.5-2% APY? Was I mis-informed by Vanguard?
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Sorry for resurrecting an old thread but I thought the Vanguard Money Market Accounts (VMFXX and VMMXX) had pretty decent returns at 1.5-2% APY? Was I mis-informed by Vanguard?
You are correct:
https://investor.vanguard.com/mutual-funds/profile/VMFXX
https://investor.vanguard.com/mutual-funds/profile/VMMXX
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In that case, why would I want to open another account (at another institution outside of Vanguard) to get the most out of my emergency fund cash?
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Hi guys, a little confused here. Why am I hearing VMFXX and similar MM accounts earn little to no money if the returns are close to 2%? That is indeed something.
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Hi guys, a little confused here. Why am I hearing VMFXX and similar MM accounts earn little to no money if the returns are close to 2%? That is indeed something.
Impossible to know without knowing where you are hearing that. One possible reason could be if you are reading that in older articles. Just like a bank account, the yield on these MM accounts changes with interest rates over time. The "7 day SEC yield" is a good measure of what it is currently paying, but for several years in the recent past the yield was much lower than it is today, just like interest bearing accounts that you might see at a bank.