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VMRXX vs VMFXX: Which Vanguard Money Market Fund Should You Choose?

VMRXX (Vanguard Cash Reserves Federal Money Market Fund ) and VMFXX (Vanguard Federal Money Market Fund) are two money market funds offered by Vanguard.

Both of these mutual funds invest primarily in cash, U.S. government securities, and repurchase agreements. They are considered conservative investment options that provide income while maintaining a stable net asset value (NAV) of $1 per share.

Are you curious to know which of these two conservative investment options is right for you? In this post, we’ll compare VMRXX and VMFXX regarding performance, fees, and tax efficiency.

Let’s dive in.

 

What is VMRXX?

VMRXX, or Vanguard Cash Reserves Federal Money Market Fund, is a money market fund that invests most of its total assets in cash, U.S. government securities, and repurchase agreements backed by U.S. government securities.

VMRXX follows the following investment conditions:

  • 99.5% of total assets in cash, U.S. government securities, and repurchase agreements backed by U.S. government securities
  • 25% of total assets in securities issued by companies in the financial services industry

VMFXX is considered a conservative mutual fund that generates lower returns compared to other mutual funds.

It maintains a share price of $1 while investing in short-term government securities and providing current income and its returns are heavily dependent on the interest rate environment, just like all other money market funds.

 

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What is VMFXX?

VMFXX is Vanguard’s Federal Money Market Fund. Like VMRXX, the fund invests most of its total assets in cash, U.S. government securities, and repurchase agreements backed by U.S. government securities.

Just like other Vanguard money market funds, VMFXX is considered a conservative mutual fund that generates lower returns compared to other mutual funds.

 

VMRXX vs VMFXX: Which money market fund is better?

 

VMRXXVMFXXEdge
Fund TypeMoney MarketMoney MarketTie
Holdings155155Tie
Diversification99.5% of total assets in cash, U.S. government securities, and repurchase agreements backed by U.S. government securities

25% of total assets in securities issued by companies in the financial services industry
99.5% of total assets in cash, U.S. government securities, and repurchase agreements backed by U.S. government securitiesTie
Minimum Investment$3,000$3,000Tie
Expense Rations0.10%0.11%Slight Edge to VMRXX
Tax EfficiencyTreasury securities income is fully taxableTreasury securities income is fully taxableSlight Edge to VMRXX
Tax Loss HarvestingFunds can be reinvested on the same-dayFunds can be reinvested on the same-dayTie
Performance1.56% – 20221.55% – 2022VMRXX
Dividend Yield3.12% – 20233.11% – 2023VMRXX
Risk Rating1 – Conservative Fund1 – Conservative FundTie

 

Diversification – Tie

VMRXX and VMFXX both invest 99.5% of their portfolio in secure assets such as:

  • Cash
  • U.S Government Securities
  • Repurchase Agreements backed by the U.S. government or cash

One key difference between VMRXX and VMFXX is that VMRXX invests more than 25% of its assets in securities issued by companies in the financial services industry. In contrast, VMFXX invests primarily in government-backed securities.

Another key difference between these mutual funds is the ratio they invest between these three assets. While the ratio between these two is slightly different, they distribute their portfolio in a similar fashion.

 

IssuerVMRXXVMFXX
Repurchase Agreements37.30%42.20%
U.S. Govt. Obligations35.70%29.90%
U.S. Treasury Bills27.00%26.90%

Source: VMRXXVMFXX

 

As the table shows, the portfolios have a similar diversification. VMFXX has a slightly higher portfolio composition in Repurchase agreements and a slightly smaller proportion in U.S. government obligations and U.S. treasury bills.

If you invest in VMRXX and VMFXX, you will have a similar level of diversification with no portfolio having a clear edge.

 

Minimum Investment – Tie

VMRXX and VMFXX are both Vanguard money market funds that have a minimum investment of $3,000. Both funds maintain a stable share price of $1. That translates to 3,000 shares at a minimum investment of $3000.

 

Expense Ratios – Slight Edge to VMRXX

VMRXX has a slight edge with an expense ratio of 0.10% compared to 0.11% for VMFXX.

While the difference between their expense ratio is marginal at only 0.01%, this difference can be meaningful at higher investment levels.

That said, both of these Vanguard money market funds are in line with the average Vanguard mutual fund expense ratios. The average Vanguard mutual fund expense ratio is 0.09%. The industry average expense ratio for mutual funds is 0.54%.

 

Tax Efficiency – Slight edge to VMFXX

VMRXX and VMFXX are both money market mutual funds that have the same tax treatment. This is because they are both mutual funds.

Both VMRXX and VMFXX underlying treasury securities produce income that is generally fully taxable at the investor’s ordinary income tax rate for federal tax purposes. Ordinary income tax rates are generally higher than capital gains tax rates.

That said, most states do not tax income from treasury securities. Since both money market funds have a similar diversification they are likely to have a similar tax impact.

Let’s take a look at each finding after-tax distributions.

 

Total Returns after Taxes
VMRXXVMFXX
YearBefore TaxesAfter TaxesTax ImpactBefore TaxesAfter TaxesTax Impact
1-Yr4.63%2.72%1.91%4.61%2.71%1.90%
3-Yr1.76%1.04%0.72%1.75%1.03%0.72%
5-Yr1.74%1.03%0.71%1.67%0.99%0.68%
10-Yr1.19%0.70%0.49%1.07%0.63%0.44%

 

From the table above we can see two things:

  1. VMFXX has a smaller tax impact over each return period.
  2. Over shorter periods of time, the tax impact is smaller than over larger periods.

We also see that the difference in tax impact is marginal between the two. The biggest difference of 0.05% over 10 years and the smallest impact of 0.00% over a 3-year period.

While VMRXX has a slightly higher tax impact than VMFXX, it has consistently produced higher returns.

 

Tax Loss Harvesting – Tie

Tax-loss harvesting is a strategy that involves selling investments at a loss to offset gains (and up to $3,000 in ordinary income). This strategy can be implemented for any investment type, including mutual funds and money market funds.

In this case, since both VMRXX and VMFXX are money market mutual funds, they offer the same rules and restrictions in terms of tax-loss harvesting.

With both VMRXX and VMFXX, you can sell the mutual funds and have the funds scheduled to be reinvested on the same day. This allows you to harvest tax losses and reinvest in a similar (or different) fund that same day.

 

Performance – VMRXX Wins

Next, let’s examine how VMRXX and VMFXX differ in annual performance.

 

Total Returns by NAV
YearVMRXXVMFXXDifference
20221.56%1.55%0.01%
20210.02%0.01%0.01%
20200.57%0.45%0.12%
20192.29%2.14%0.15%
20182.01%1.78%0.23%
20171.08%0.81%0.27
20160.55%0.30%0.25%
20150.11%0.04%0.07%
20140.05%0.01%0.04%
20130.06%0.02%0.04%
20120.11%0.01%0.10%
20110.14%0.01%0.13%
20100.20%0.02%0.18%

Source: VMRXXVMFXX

 

The table above demonstrates that VMRXX has outperformed VMFXX by an average of 0.12% over the last 12 years. That said, over the last two years, 2022 and 2022, VMRXX and VMFXX  total annual returns have been closer than ever with only a 0.01% difference.

The cumulative results of total returns by NAV paint a similar picture.

 

Cumulative Returns by NAV
PeriodVMRXXVMFXXDIfference
1-Yr4.63%4.61%0.02%
3-Yr5.36%5.33%0.03%
5-Yr9.02%8.65%0.37%
10-Yr12.58%11.27%1.31%

Source: VMRXXVMFXX

 

From the table above we can see that over a 1-year and 3-year period, the difference in returns is 0.02% and 0.03%. But, over longer periods such as 10-year VMRXX outperforms VMFXX by 1.31%.

This gives VMRXX a clear edge when it comes to both total annual returns and total cumulative returns.

Now let’s take a look at how VMRXX and VMFXX dividend yield performance compare using the table below.

 

Average Dividend Yield
YearVMRXXVMFXXDifference
20233.12%3.11%0.01%
20220.34%0.33%0.01%
20210.14%0.10%0.04%
20201.58%1.42%0.16%
20192.15%1.97%0.18%
20181.42%1.19%0.23%
20170.77%0.48%0.29%
20160.20%0.16%0.04%
20150.06%0.01%0.05%
20140.05%0.02%0.03%
20130.06%0.01%0.05%

Source: VMRXXVMFXX

 

From the average yearly dividend yield we can see the VMRXX again outperforms VMFXX.

Similar to total annual returns the difference in performance is marginal between 2023 and 2021 with a difference of 0.01%, 0.01%, and 0.04%. However, over the long term, VMRXX has outperformed VMFXX by an average of 0.10% over the last 10 years.

 

VMRXX vs. VMFXX: Which One Should I Invest In?

VMRXX and VMFXX are very similar but there are some key aspects that you can use to decide which to invest in.

If performance is your top priority then VMRXX has a clear advantage. VMRXX produces higher total annual returns, cumulative returns, and dividend yields than VMFXX. With that said the difference in returns has decreased over the last several years showing only marginal differences while differences prior to 2021 were more significant.

Another important consideration is cost. VMRXX is less expensive than VMFXX by 0.01%. While the difference is marginal when you add this to the outperformance by VMRXX it enhances the amount of returns you will receive.

In terms of tax efficiency, VMFXX has a slight edge as it has a smaller tax impact than VMRXX. That said, these higher tax impacts are offset by the higher after-tax returns that VMFXX generates.

When choosing between VMRXX and VMFXX they have a very similar portfolio diversification and risk profile. In addition, they also have the same investment minimums and tax loss harvesting potential.

Overall, if you value higher performance and lower cost when choosing your mutual fund, VMRXX could be a better option for you.

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