Here’s a little gem in today’s International Herald-Tribune: the Primary Fund, part of one of the largest and oldest money market funds around, has dropped its share value to 97 cents.
Now a loss of three cents a share isn’t going to break any of us up in business. But…well, heck. Dunno about you, my friends, but being the cheapskate that I am, I don’t want to see even three pennies go away. I have a fair amount sitting in Vanguard’s Prime Money Market, cash saved to pay off the Renovation Loan and to double as an emergency fund. Since it’s not invested in stocks or bonds, it could just as easily lay fallow in the credit union as at Vanguard. At the credit union, it’s insured.
So I called Vanguard this afternoon, where I learned I was far from the first to harry the call center employees with fussy questions about their money market funds. The young woman I reached assured me that “Vanguard is very confident” (uhm…is this a statement with meaning?) and that its money market funds are not invested in any instruments presently known to be at risk.
O.K.
I guess.
Path of least resistance is to leave the money at Vanguard. Path of medium resistance is to write a check on the fund and pay down the Renovation Loan by ten or eleven grand (and maybe plant some vegetables in the backyard to cover for the proposed emergency). Path of most resistance is to move everything over to the credit union, whose arcane rules assign a different return to each of the half-dozen different accounts it offers and so will require some figuring out.
Hmmm… Bogle, can your successors be trusted? Probably. It’s at least a strong maybe.
Do I want to pay off that loan right this minute? Nope. With the economy melting down around us, I want cash.
Am I making a larger pittance on cash savings at Vanguard than at the credit union? Yes. But only if Vanguard’s Prime Money Market Fund never breaks the dollar.
Looks to me like the path of most resistance could be the best way to go: identify the best-paying CU account (money market: 1.88%; CD: 2.23% for 3 months to 3.92% for 5 years; savings: 5% up to $1,000 and .75% over $1,000) and move the money over there.
Good grief. Just look at the complexity of those options. Makes me not want to think about it! Gut instinct, though, suggests I’d make a little less at the CU but sleep better with savings insured up to $100,000. The wee dividends don’t matter, but that deposit insurance sure does.
Three cents is also an overnight 3% reduction in principle. Takes a while to earn that back given today’s interest rates, especially for “safe” environment. Now there’s humor (or is it irony?) for you.
I also have money in that fund. I’m trying to decide what to do with it now, too. But mine is retirement funds in a SEP IRA, so I’m not sure I could move it if I wanted to.
Must find out…
From what I can tell, it’s best not to move it. Vanguard is probably as safe as any money market fund. You can have any investment you want within an IRA, of course: if you want to move the money into another fund, just have Vanguard open a different fund and move the money from Prime MM to the new fund. It stays in the IRA…it’s just invested in a different fund.