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I have had my savings in the Prime Money Market Fund (VMMXX) @ Vanguard for years. I place all money that I do not intend on spending this month is that account. It really my savings account. This account currently has a yield of only 0.72%. This stinks, I know, but this is my temporary place to rest my cash.
What to do?
Well, I have exchanged almost all of what is in that account to the Tax-Exempt MMF (VMSXX) also with Vanguard. Why? This MMF has a yield of 0.67%, but that is all tax free. I receive 5 basis points less (.72-.67=.05) however, it is all tax free. I know that tax free .67% allows me to retain more than .72% taxable does.
It's simple math, but you have to know when to apply it.
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Micharch, I have a question. What kind of protection is there for money in a Market Fund like that? Doesn't the current stock market drop affect those types of accounts?
Well basically there is not FDIC protection like a bank account, but you may receive a better yield than a savings account. Or you may not receive a better yield.
The MMF are generally not tied to the stock market. They are invested in very short term (less than a year) bonds, debentures, etc. The MMF generate only income, thus the per share value stays always at $1.00 per share. When bonds pay less (like now) interest, the MMF has a lower yield and the investor get less of a return. It is very rare that a MMF will "break the buck", that is, have a per share value of less than $1.00.
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I want to ask something too and it's more about an observation. You're so organized financially, micharch. Have you always been that way? Your posts impress me very much and I don't ask because I'm nosey. I ask because I don't know anybody that seems to have it all so 'together' and I want to know how you get to that point. I wasn't taught much about finances at home.
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Thanks so much for you positive comments Jewell. I doubt that I have always been so "financially organized" (nice phrase, BTW) but I have always tried to look at both sides of any financial situation, realizing that there are good arguments for both sides. I have tried to educate myself as much as possible by using my own research and wits.
Over time I have finally realized that there are many, many folks, like myself, who have taken the time to become educated in investing/financial planning in a do it yourself (DIY) manner. Without some master plan or big movement I, and others who seem to do what I have done, have realized that there are many people in the financial services field (stock brokers, financial planners, mutual fund salesmen, insurance agents, bankers, etc) who have THEIR interests placed before the client's interests. The public (all of us) have assumed for many years that that these guys are looking out for our (we the public) best interest rather than their own best interest, when just the opposite is true.
Many (most?) in the financial services business could care less about giving their best efforts for the betterment of the client. They are all about making sure that the client's best interest is subservient to those of the salesman/broker/agent of the company. Look at it this way, they would rather their family be successful, get well educated, have a relaxing retirement than your family be so rewarded. How do I know this? I was in that business for 20+ years and observed much abuse of unsuspecting clients that resulted in that reward by those who "assisted" the client.
Personal education is the absolute best way to overcome this imbalance in investing. My observation in the financial services world is that they have always used language that is generally incomprehensible to outsiders (i.e. credit default swaps, basis points, puts, calls, etc) even to those who are otherwise quite educated. We assume (wrongly) that these obviously complex financial terms are much too complicated for the average Joe (us) to comprehend, so we tend to invest with them because they are the "smartest guys in the room" (think Ken Lay, Bernie Madoff, Mark Stanford) and we do not want to miss the gravy train (greed~a human condition that they exploit).
I'm often reminded of the following story that is told about how Wall Street (them) thinks about Main Street (us):
Once in the dear dead days beyond recall, an out-of-town visitor was being shown the wonders of the New York financial district. When the party arrived at the Battery, one of his guides indicated some handsome ships riding at anchor. He said, “Look, those are the bankers and brokers yachts.” “Where are the customer’s yachts?” asked the naive visitor.
Of course, the customer has no yacht.
What I have recommended to many people over the years is to empower yourself and educate yourself by reading books and doing research on the Internet. I can recommend books to read and most of them can be obtained for free! Where? At your public library. If they do not have a particular book that you would like to read, ask them to acquire it for their collection. Remember, you have already paid for the books with your taxes and they will be purchasing books continually, why not books that you want to read?
Remember, once you read a book, the information will not only help you today, it will help you the rest of your life~ assuming you understand what you have read and know how to apply it (the easy part).
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Thanks so much for you positive comments Jewell. I doubt that I have always been so "financially organized" (nice phrase, BTW) but I have always tried to look at both sides of any financial situation, realizing that there are good arguments for both sides. I have tried to educate myself as much as possible by using my own research and wits.
Over time I have finally realized that there are many, many folks, like myself, who have taken the time to become educated in investing/financial planning in a do it yourself (DIY) manner. Without some master plan or big movement I, and others who seem to do what I have done, have realized that there are many people in the financial services field (stock brokers, financial planners, mutual fund salesmen, insurance agents, bankers, etc) who have THEIR interests placed before the client's interests. The public (all of us) have assumed for many years that that these guys are looking out for our (we the public) best interest rather than their own best interest, when just the opposite is true.
Many (most?) in the financial services business could care less about giving their best efforts for the betterment of the client. They are all about making sure that the client's best interest is subservient to those of the salesman/broker/agent of the company. Look at it this way, they would rather their family be successful, get well educated, have a relaxing retirement than your family be so rewarded. How do I know this? I was in that business for 20+ years and observed much abuse of unsuspecting clients that resulted in that reward by those who "assisted" the client.
Personal education is the absolute best way to overcome this imbalance in investing. My observation in the financial services world is that they have always used language that is generally incomprehensible to outsiders (i.e. credit default swaps, basis points, puts, calls, etc) even to those who are otherwise quite educated. We assume (wrongly) that these obviously complex financial terms are much too complicated for the average Joe (us) to comprehend, so we tend to invest with them because they are the "smartest guys in the room" (think Ken Lay, Bernie Madoff, Mark Stanford) and we do not want to miss the gravy train (greed~a human condition that they exploit).
I'm often reminded of the following story that is told about how Wall Street (them) thinks about Main Street (us):
Once in the dear dead days beyond recall, an out-of-town visitor was being shown the wonders of the New York financial district. When the party arrived at the Battery, one of his guides indicated some handsome ships riding at anchor. He said, “Look, those are the bankers and brokers yachts.” “Where are the customer’s yachts?” asked the naive visitor.
Of course, the customer has no yacht.
What I have recommended to many people over the years is to empower yourself and educate yourself by reading books and doing research on the Internet. I can recommend books to read and most of them can be obtained for free! Where? At your public library. If they do not have a particular book that you would like to read, ask them to acquire it for their collection. Remember, you have already paid for the books with your taxes and they will be purchasing books continually, why not books that you want to read?
Remember, once you read a book, the information will not only help you today, it will help you the rest of your life~ assuming you understand what you have read and know how to apply it (the easy part).
What a fantastic post, micharch. What irritates me most is the masses of people now suffering at the hands of those supposed "smartest guys in the room", the Madoff's of this world, because their trust was misplaced. It's small comfort that many of the richest people in the world did the same. I haven't faith in any of them at all anymore.
Micharch, I have a question. What kind of protection is there for money in a Market Fund like that? Doesn't the current stock market drop affect those types of accounts?
The only reason a great many American families don't own an elephant is that they have never been offered an elephant for a dollar down and easy weekly payments. - Mad Magazine.