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VMRXX, or Vanguard Cash Reserves Federal Money Market Fund, is one of Vanguard’s core money market funds geared towards conservative investors looking to generate income.
Like many other money market funds, VMRXX aims to maintain a $1 NAV while investing primarily in short-term government securities. They also invest in securities issued by companies in the financial services industry.
So, how does VMRXX compare to other money market funds?
In this post, we review everything you need to know about VMRXX before investing.
What is a Money Market Fund?
Before we dive into VMRXX, let’s review what a money market fund is first,
Money market funds are mutual funds that invest in short-term debt instruments, including commercial paper, CDs, and Treasury bills.
Investors use this kind of funds to provide a safe and liquid place for their money while earning more than they could get from the bank. The SEC regulates Money market funds and, therefore, follows strict rules to maintain a stable net asset value (NAV) of $1 per share.
What is VMRXX?
VMRXX, also known as Vanguard Cash Reserves Federal Money Market Fund, is a money market fund offered by Vanguard.
The fund invests most of its total assets in cash, U.S. government securities, and repurchase agreements backed by U.S. government securities.
There are a few investment conditions that VMRXX follows:
- 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
Like other Vanguard money market funds, VMRXX is considered a conservative mutual fund that generates lower returns than other mutual funds. VMRXX maintains a share price of $1 while investing in short-term government securities and providing current income.
It’s important to note that, like many other money market funds, VMRXX returns heavily depend on the interest rate.
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VMRXX Mutual Fund Details
| VMRXX | |
|---|---|
| Date of Inception | 1989 |
| Taxable | Yes |
| Asset Class | Money Market Fund |
| Management Style | Active |
| Risk | Low / Conservative |
| Number of Holdings | 155 |
| Average Maturity | 22 Days |
| Total Net Assets (9/30/2023) | $110.4 B |
Comparison Chart to Other Vanguard Money Market Offerings:
| Fund Name | Expense Ratio | 7-day SEC Yield | Tax Exempt | Minimum Investment |
|---|---|---|---|---|
| Vanguard Cash Reserves Federal Money Market Fund (VMRXX) | 0.10% | 5.29% | No | $3,000 |
| Vanguard Treasury Money Market Fund (VUSXX) | 0.09% | 5.22% | No | $3,000 |
| Vanguard Federal Money Market Fund (VMFXX) | 0.11% | 5.29% | No | $3,000 |
| Vanguard Municipal Money Market Fund (VMSXX) | 0.15% | 4.10% | Yes | $3,000 |
| Vanguard California Municipal Money Market Fund (VCTXX) | 0.16% | 3.22% | Yes | $3,000 |
| Vanguard New York Municipal Money Market Fund (VYFXX) | 0.17% | 4.05% | Yes | $3,000 |
VMRXX Portfolio Composition
Understanding the portfolio composition is important when investing in a mutual fund. The portfolio composition will help you understand the diversification, expected returns, and risk.
First, let’s look at the portfolio by the issuer type.
| Issuer | Weight |
|---|---|
| Repurchase Agreements | 37.30% |
| U.S. Govt. Obligations | 35.70% |
| U.S. Treasury Bills | 27.00% |
Source: VMRXX
You can see that the portfolio is nicely distributed between the three key types of money market issuers.
Let’s take a step further and look at the asset allocation of VMRXX.
| Asset Allocation | Weight |
|---|---|
| Cash | 74.87% |
| Bonds | 25.13% |
| Stocks | 0.00% |
| Preferred Stocks | 0.00% |
| Other | 0.00% |
| Convertible Bonds | 0.00% |
Source: VMRXX
As a conservative money market fund, you can see that the portfolio is invested in cash and bonds, with nearly 75% in cash assets.
VMRXX Performance
When choosing a money market fund, it’s important to consider the performance. Looking at the performance of a single VMRXX is difficult; we will look at other similar money market funds offered by Vanguard.
Below, you can see the performance of VMRXX along with VSUXX and VMFXX, two other Vanguard money market funds.
| Total Returns by NAV | |||
|---|---|---|---|
| Year | VMRXX | VSUXX | VMFXX |
| 2022 | 1.56% | 1.50% | 1.55% |
| 2021 | 0.02% | 0.01% | 0.01% |
| 2020 | 0.57% | 0.47% | 0.45% |
| 2019 | 2.29% | 2.14% | 2.14% |
| 2018 | 2.01% | 1.80% | 1.78% |
| 2017 | 1.08% | 0.79% | 0.81% |
| 2016 | 0.55% | 0.25% | 0.30% |
| 2015 | 0.11% | 0.02% | 0.04% |
| 2014 | 0.05% | 0.01% | 0.01% |
| 2013 | 0.06% | 0.01% | 0.02% |
| 2012 | 0.11% | 0.02% | 0.01% |
| 2011 | 0.14% | 0.02% | 0.01% |
| 2010 | 0.20% | 0.01% | 0.02% |
| Cummulative Returns by NAV | |||
|---|---|---|---|
| Period | VMRXX | VSUXX | VMFXX |
| 1-Yr | 4.63% | 4.55% | 4.61% |
| 3-Yr | 5.36% | 5.25% | 5.33% |
| 5-Yr | 9.02% | 8.57% | 8.65% |
| 10-Yr | 12.58% | 11.12% | 11.27% |
While these money market funds are considered low-risk or very conservative and invest in similar asset classes with different proportions, there is a distinction in their performance.
VMRXX has outperformed both VSUXX and VMFXX annually since 2010. Cumulative total returns paint the same picture. VMRXX outperforms both other money market funds, but with VMFXX generates much closer performance results in the short term but not over the long term.
Advantages of VMRXX:
1. Safety and Low Risk:
VMRXX is considered one of the most conservative money mutual funds available. The fund invests in security backed by the U.S. government, bonds, and other cash equivalents to keep its risk profile relatively low.
US Treasury is widely considered “riskless” due to this backing. Consequently, the fund is virtually immune to credit risk, reducing the chances of a principal loss.
The fund’s focus on shorter-term securities minimizes interest rate risk, as longer-term debt instruments are more sensitive to changes in market interest rates. This dual approach ensures VMRXX’s safety from both credit and interest rate risk.
2. Price Stability:
VMRXX maintains a constant Net Asset Value (NAV) of $1 per share, guaranteeing that investors can redeem their shares at the same value they initially invested without any fluctuations in their investment’s worth. This consistency provides excellent price stability.
3. Income Generation:
VMRXX generates income for its investors through interest payments and capital gains from its underlying securities. This income is distributed to shareholders every month. The fund’s performance can be gauged by its yield, representing the annualized percentage return based on its income and NAV.
The yield may vary depending on market conditions and fund expenses. As of October 13, 2023, VMRXX boasted a 7-day SEC yield of 5.3%, reflecting the annualized yield over the past 30 days.
Disadvantages of Investing in VMRXX:
1. Low Return
Due to its low-risk profile, VMRXX will yield lower returns than other riskier mutual funds.
The fund’s returns are restricted by the low-interest rates associated with the underlying US treasury securities it holds. The trade-off for low risk is often low reward, given that treasury securities are considered relatively risk-free, hence offering modest expected returns.
2. Taxation
Compared to other money market funds, such as those holding municipal securities with tax advantages, VMRXX’s underlying treasury securities generate income typically 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. However, it’s worth noting that most states do not tax income from treasury securities.
Main Factors to consider before investing in VMRXX:
1. Investment Objective:
VMRXX is suitable for parking cash for short-term savings goals, particularly for investors with modest performance expectations. The fund’s main goal is to generate current income while investing in short-term securities and keeping a low-risk profile.
However, it is not the ideal fund for those with long-term investment horizons who seek significant portfolio growth. It’s important to note that VMRXX does not offer federal tax benefits, as income from treasury securities is subject to ordinary income tax rates for federal tax purposes.
Nonetheless, the fund can provide state tax savings in states with income taxes, given that income from most treasury securities is typically exempt from state income taxes. Investors focused on minimizing taxable income may find better options in funds like Vanguard’s municipal money market fund, which offers greater tax savings.
2. Risk Tolerance
VMRXX is well-suited for investors with a low-risk tolerance who prioritize stability and safety in their portfolios, even if it means accepting lower returns. However, for investors with a higher risk tolerance and a stronger desire for portfolio growth, VMRXX may serve as a reasonable temporary cash parking solution between transactions but is unsuitable for long-term investment.
3. Fees and Expenses
VMRXX, like other offerings from Vanguard, is known for its cost-effectiveness, featuring minimal expense ratios compared to other money market funds. Nevertheless, investors seeking a no-cost or even negative-cost money market fund can explore alternative options available in the marketplace.
Conclusion
VMRXX is one of several money market funds offered by Vanguard with low-cost expense ratios. It invests in short-term government securities, keeping its risk and returns low, but can generate income.
The fund separates itself from other Vanguard money market funds for its more even distribution between repurchase agreements, U.S Gov. Securities, and U.S Treasury Bills. This allows VMRXX to generate higher returns than other more conservative money market funds.
VMRXX is perfect for investors seeking to invest in a low-risk money market fund that generates income.
2 thoughts on “VMRXX: Should You Invest?”
I’ve been using VUSXX instead of VMFXX because my block blast income is low enough that I don’t pay federal tax but I do owe state tax.
VUSXX is preferrable if you live in a state with an income tax. The SEC yield is usually close, and during 2023 often higher than VMRXX, plus it has very high percentage of US Treasury securities which pay dividends not subject to state income tax.