Vanguard announces changes to money market funds
The following changes will take effect in early August for retirement plan investors:
If you are investing in either fund, you will receive a letter from Vanguard with more details, including an outline of your options.
Why are these changes being made?
"Taking these preventive measures will protect fund shareholders and help to ensure that the funds' yields remain competitive," said Bill McNabb, Vanguard CEO. "It is possible that yields on government-backed securities and, consequently, Vanguard Admiral Treasury Money Market and Vanguard Federal Money Market Funds will remain quite low for the foreseeable future. Shareholders may wish to consider switching to alternative Vanguard fund options that are consistent with their goals and risk tolerance."
The merger of Vanguard Treasury Money Market Fund, which has an expense ratio of 0.28%, into the Admiral Treasury Money Market Fund, with its lower expense ratio of 0.15%, will reduce expenses for Treasury Fund shareholders while continuing to keep yields at competitive levels. After the merger, Admiral Treasury Money Market Fund is expected to maintain an expense ratio of 0.15%. Additionally, reducing new cash flow into Vanguard Federal Money Market Fund may slow the decline of that fund's yield.
Vanguard's actions come amid continuing strong demand for government-backed securities, which have served as a safe haven during the global financial crisis. This increased demand, coupled with cuts to prevailing interest rates by the Federal Reserve, has driven yields of government-backed securities to record lows, with current 1- and 3-month Treasury bills yielding less than 0.20%. As securities in Vanguard money market funds mature, the reinvestment of assets into new, lower-yielding securities decreases the funds' yields.
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