Vanguard Asks Why Money Funds?
Vanguard posted an article entitled, "Stashing cash in a bank account? Why you should think about money market funds." They tell us, "You've probably given a lot of thought to the stock and bond investments in your portfolio. But have you stopped to think about how you're managing your cash? ... Cash is a part of a diversified portfolio. How you allocate your investments across stocks, bonds, and cash is one area of investing you can control. In fact, research has shown that, if you have a diversified portfolio, 88% of your experience (the volatility you encounter and the returns you earn) can be traced back to your asset allocation. Cash investments are very short-term investments that can lower the overall risk of your portfolio. Because cash tends to be safer, you can use it as a 'parking lot' if you: Are still deciding how to invest your money, or need to spend your money in the next 3–6 months, for example, for college tuition or a down payment on a house. One popular cash investment is a money market mutual fund." They explain, "Because interest rates are rising, now's a good time to check the yield on your money market funds, savings accounts, certificates of deposit (CDs), and brokerage settlement funds to see how much more you're earning. If you invest in money market funds, you'll likely earn about the same income as, or sometimes more than, other banking products. And while these funds don't have the additional insurance of a banking product, they also offer: Easy access to your money ... [and] a reduction in market risk. Money market funds invest in high-quality, ultra-short-term securities, like Treasury bills and CDs, greatly reducing your market risk compared with stock or bond funds.... With our funds, you'll get: Superior returns. Our funds have produced exceptional returns compared with their peers. In fact, 100% of Vanguard money market funds performed better than their peer-group averages over the past 1-, 3-, 5-, and 10-year periods. Low costs. Since money market funds have lower yields than more aggressive investments, costs play an even bigger factor.... The average expense ratio on Vanguard's money market funds is 57% less than the industry average." Randy Lee, head of fixed income product management at Vanguard, comments, "We've relentlessly focused on maintaining high standards for managing credit in our portfolios, preserving liquidity, and guarding against disruptive redemption activity.... Our money market funds provide high-quality and liquid investments in both stable financial markets and periods of uncertainty, offered at a low cost and managed by a deeply experienced team.... This formula allows us to provide highly competitive yields while maintaining the investment prudence and stability investors seek in a money market product."
