Comments on: Cashing in With the Vanguard Tax Exempt Money Market Fund http://www.fivecentnickel.com/2008/10/13/making-bank-with-the-vanguard-tax-exempt-money-market-fund/ personal finance tips, tricks, and commentary Sat, 21 Nov 2009 22:51:28 -0500 http://wordpress.org/?v=abc hourly 1 By: Dave http://www.fivecentnickel.com/2008/10/13/making-bank-with-the-vanguard-tax-exempt-money-market-fund/comment-page-1/#comment-126415 Dave Wed, 05 Nov 2008 04:06:01 +0000 http://www.fivecentnickel.com/?p=1798#comment-126415 I see a YTD return of 1.86% on Nov 3. How can this be a 4.53% yield? Am I missing something? Thanks for the help and explanation. https://personal.vanguard.com/us/JSP/Funds/Profile/VGIFundProfile0045Content.jsf?tab=0&FundId=0045&FundIntExt=INT#hist::tab=0 I see a YTD return of 1.86% on Nov 3. How can this be a 4.53% yield? Am I missing something? Thanks for the help and explanation.

https://personal.vanguard.com/us/JSP/Funds/Profile/VGIFundProfile0045Content.jsf?tab=0&FundId=0045&FundIntExt=INT#hist::tab=0

]]> By: Mike http://www.fivecentnickel.com/2008/10/13/making-bank-with-the-vanguard-tax-exempt-money-market-fund/comment-page-1/#comment-126118 Mike Tue, 21 Oct 2008 15:24:13 +0000 http://www.fivecentnickel.com/?p=1798#comment-126118 Fortunately they’re investing in tax-exempt bonds, which are munis, which are linked to the financial solvencies of state governments. The money market funds that broke the buck had invested in corporate bonds, specifically Lehman, so you’d think these are “safer” than typical money market funds. Comment by jim — Oct 13th 2008 @ 2:59 pm =============== Jim, that's not correct. A muni bond (tax exempt) can be backed by the "full faith and credit" of the municipality or state but they are not all that way. A General Obligation (GO) bond has that backing but other types (like Revenue) do not. Their payback may be based on many things - utilities or simply a payment stream on a city parking lot, tolls, rents on buildings, or whatnot. Any large fund or MM will include a mixture of all types of munis - not just GO. IMHO, part of the reason muni yields have increased is because of the fear of failure of some of these bonds and partly because people have been fleeing everything in favor of the safest investment - US Treasuries. What the future holds is anybody's guess. Fortunately they’re investing in tax-exempt bonds, which are munis, which are linked to the financial solvencies of state governments. The money market funds that broke the buck had invested in corporate bonds, specifically Lehman, so you’d think these are “safer” than typical money market funds.

Comment by jim — Oct 13th 2008 @ 2:59 pm
===============
Jim, that’s not correct. A muni bond (tax exempt) can be backed by the “full faith and credit” of the municipality or state but they are not all that way. A General Obligation (GO) bond has that backing but other types (like Revenue) do not. Their payback may be based on many things – utilities or simply a payment stream on a city parking lot, tolls, rents on buildings, or whatnot. Any large fund or MM will include a mixture of all types of munis – not just GO.

IMHO, part of the reason muni yields have increased is because of the fear of failure of some of these bonds and partly because people have been fleeing everything in favor of the safest investment – US Treasuries. What the future holds is anybody’s guess.

]]> By: Cheaplee http://www.fivecentnickel.com/2008/10/13/making-bank-with-the-vanguard-tax-exempt-money-market-fund/comment-page-1/#comment-126035 Cheaplee Tue, 14 Oct 2008 23:35:23 +0000 http://www.fivecentnickel.com/?p=1798#comment-126035 Read between the lines. Higher rates are great for us investors, but they also increase the cost to the taxpayer. If a municipal is having trouble selling it's debt, it has to raise its rate. And it usually has trouble because they have too much debt, such as California. Next stop, higher Treasury rates to pay for the bailout, Fannie and Freddie. Read between the lines. Higher rates are great for us investors, but they also increase the cost to the taxpayer. If a municipal is having trouble selling it’s debt, it has to raise its rate. And it usually has trouble because they have too much debt, such as California. Next stop, higher Treasury rates to pay for the bailout, Fannie and Freddie.

]]> By: Randy http://www.fivecentnickel.com/2008/10/13/making-bank-with-the-vanguard-tax-exempt-money-market-fund/comment-page-1/#comment-126030 Randy Tue, 14 Oct 2008 17:05:35 +0000 http://www.fivecentnickel.com/?p=1798#comment-126030 Yeah. I got it. The assumption is that is it was taxable, it had better be earning the 6.47%. Both of our math was correct, just different views. Thanks for seeing through my head cold... Yeah. I got it. The assumption is that is it was taxable, it had better be earning the 6.47%. Both of our math was correct, just different views. Thanks for seeing through my head cold…

]]> By: nickel http://www.fivecentnickel.com/2008/10/13/making-bank-with-the-vanguard-tax-exempt-money-market-fund/comment-page-1/#comment-126028 nickel Tue, 14 Oct 2008 16:29:54 +0000 http://www.fivecentnickel.com/?p=1798#comment-126028 Randy: Look at it this way... If you had to pay 30% federal taxes on it, you'd have to earn 6.47% in order to keep 4.53% after federal taxes (i.e., 6.47% x 0.70 = 4.53%). So... The lack of federal taxes makes it the equivalent of earning 6.47% in a fund on which you have to pay federal income tax. Make sense? Randy: Look at it this way… If you had to pay 30% federal taxes on it, you’d have to earn 6.47% in order to keep 4.53% after federal taxes (i.e., 6.47% x 0.70 = 4.53%). So… The lack of federal taxes makes it the equivalent of earning 6.47% in a fund on which you have to pay federal income tax. Make sense?

]]> By: Randy http://www.fivecentnickel.com/2008/10/13/making-bank-with-the-vanguard-tax-exempt-money-market-fund/comment-page-1/#comment-126025 Randy Tue, 14 Oct 2008 16:04:09 +0000 http://www.fivecentnickel.com/?p=1798#comment-126025 Isn't it still a 4.53% return, because assuming a 30% tax bracket your real return, if taxed would be 3.17%? I do have a crazy head cold today, so it is feasible I have this backwards and that you are, in fact, correct. Isn’t it still a 4.53% return, because assuming a 30% tax bracket your real return, if taxed would be 3.17%?

I do have a crazy head cold today, so it is feasible I have this backwards and that you are, in fact, correct.

]]> By: Lisa http://www.fivecentnickel.com/2008/10/13/making-bank-with-the-vanguard-tax-exempt-money-market-fund/comment-page-1/#comment-126011 Lisa Mon, 13 Oct 2008 23:23:49 +0000 http://www.fivecentnickel.com/?p=1798#comment-126011 Thanks for posting about this money market fund. I wouldn't have noticed. Thanks for posting about this money market fund. I wouldn’t have noticed.

]]> By: Brad Ford http://www.fivecentnickel.com/2008/10/13/making-bank-with-the-vanguard-tax-exempt-money-market-fund/comment-page-1/#comment-126009 Brad Ford Mon, 13 Oct 2008 22:13:36 +0000 http://www.fivecentnickel.com/?p=1798#comment-126009 State and municpal governments are having a difficult time refinancing short term debt. As a result, Muni MMF's are getting great rates BUT: if something sounds to good to be true, it probably is. Many states and municipalities are facing rising expenses and lower tax revenues (because of lower incomes). The higher yield in muni's reflects the market's perception of their risk - higher. State and municpal governments are having a difficult time refinancing short term debt. As a result, Muni MMF’s are getting great rates BUT: if something sounds to good to be true, it probably is. Many states and municipalities are facing rising expenses and lower tax revenues (because of lower incomes). The higher yield in muni’s reflects the market’s perception of their risk – higher.

]]> By: Tim http://www.fivecentnickel.com/2008/10/13/making-bank-with-the-vanguard-tax-exempt-money-market-fund/comment-page-1/#comment-126008 Tim Mon, 13 Oct 2008 21:12:50 +0000 http://www.fivecentnickel.com/?p=1798#comment-126008 Nickel: I'm aware of that. "those mff" refers to those pre sep19th. the treasury would again back $1 for $1 if there was any further chance of mff declining. the guarantee of the pre-sep19th assures this that is why there is no chance of mff dropping again. i'll eat my shoe if i'm wrong. Nickel: I’m aware of that. “those mff” refers to those pre sep19th. the treasury would again back $1 for $1 if there was any further chance of mff declining. the guarantee of the pre-sep19th assures this that is why there is no chance of mff dropping again. i’ll eat my shoe if i’m wrong.

]]> By: nickel http://www.fivecentnickel.com/2008/10/13/making-bank-with-the-vanguard-tax-exempt-money-market-fund/comment-page-1/#comment-126007 nickel Mon, 13 Oct 2008 21:06:35 +0000 http://www.fivecentnickel.com/?p=1798#comment-126007 Tim: The new Treasury insurance plan only covers money that was invested in a MMF as of Sept 19th. I wrote about this earlier in the day. Thus, while I agree that's it's unlikely you would ever lose money with this fund, it's not guaranteed unless you were previously invested. Tim: The new Treasury insurance plan only covers money that was invested in a MMF as of Sept 19th. I wrote about this earlier in the day. Thus, while I agree that’s it’s unlikely you would ever lose money with this fund, it’s not guaranteed unless you were previously invested.

]]> By: Tim http://www.fivecentnickel.com/2008/10/13/making-bank-with-the-vanguard-tax-exempt-money-market-fund/comment-page-1/#comment-126006 Tim Mon, 13 Oct 2008 21:01:55 +0000 http://www.fivecentnickel.com/?p=1798#comment-126006 yes, but...since the treasury is backing those mff, there is less than .000001% of your money going for less than $1 for $1 now unless the fund provider itself busts. yes, but…since the treasury is backing those mff, there is less than .000001% of your money going for less than $1 for $1 now unless the fund provider itself busts.

]]> By: jim http://www.fivecentnickel.com/2008/10/13/making-bank-with-the-vanguard-tax-exempt-money-market-fund/comment-page-1/#comment-126002 jim Mon, 13 Oct 2008 18:59:12 +0000 http://www.fivecentnickel.com/?p=1798#comment-126002 Fortunately they're investing in tax-exempt bonds, which are munis, which are linked to the financial solvencies of state governments. The money market funds that broke the buck had invested in corporate bonds, specifically Lehman, so you'd think these are "safer" than typical money market funds. Fortunately they’re investing in tax-exempt bonds, which are munis, which are linked to the financial solvencies of state governments. The money market funds that broke the buck had invested in corporate bonds, specifically Lehman, so you’d think these are “safer” than typical money market funds.

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