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VUSXX vs VMFXX: Which Vanguard Money Market Fund Is Better?

VUSXX (Vanguard Treasury Money Market Fund) and VMFXX (Vanguard Federal Money Market Fund) are two money market funds offered by Vanguard. Both are designed to provide income while maintaining the primary objective of keeping a stable net asset value (NAV) of $1 per share.

So, how do you decide between these two conservative investment options? 

In this post, we’ll compare VUSXX and VMFXX in terms of performance, fees, and tax efficiency.

 

What is VUSXX?

VUSXX, also known as the Vanguard Treasury Money Market Fund, is one of the money market funds provided by Vanguard.

Vanguard offers a wide array of money market funds, including VMFXX, VMMXX, VMSXX, VCTXX, VYFXX, and VUSX., each designed to generate income while maintaining a stable net asset value (NAV) of $1 per share.

What sets VUSXX apart is its distinctive investment strategy, focusing primarily on short-term US treasuries. To be specific, the fund keeps a minimum of 80% of its assets in debt issued in US treasury securities and in repurchase agreements fully collateralized by US treasury securities (with 99.5% of this amount held in cash, US government securities, or repurchase agreements backed solely by US government securities or cash).

As an investor, you’ll find that VUSXX falls into the conservative investment category because its share prices are expected to remain stable, experiencing only minor fluctuations. This stability makes it an attractive option for individuals who seek to preserve their capital while also earning modest returns from low-risk investments.

 

What is VMFXX?

VMFXX is Vanguard’s Federal Money Market Fund. 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.

 

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VUSXX vs VMFXX: Which Money Market Fund is Better?

VUSXXVMFXXEdge
Fund TypeMoney MarketMoney MarketTie
Holdings18155VFMXX
Diversification80% of the assets in debt issued directly by the governmentVFMXX
Minimum Investment$3,000$3,000Tie
Expense Rations0.09%0.11%VUSXX - slightly less expensive
Tax EfficiencyHigher T-Bill proportion should result in more tax-efficiencySmaller T-Bills proportion can result in a larger tax burdenVSUXX - slight advantage
Tax Loss HarvestingFunds can be reinvested on the same-dayFunds can be reinvested on the same-dayTie
Performance1.50% - 20221.55% - 2022VMFXX Wins
Dividend Yield2.98% - 20233.04% - 2023VMFXX Wins in 2023
Risk Rating1 - Conservative Fund1 - Conservative FundTie

 

Diversification – VMFXX Wins

VUSXX and VFMXX are both money market accounts with similar diversification strategies. Both money market accounts must invest 99.5% of their total assets secure assets such as: 

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

The key difference between these two is the ratio that they invest between these assets. 

VUSXX invests the majority of the portfolio in U.S Treasury bills, while VFMXX has a more even split between each asset, with U.S Treasury bills accounting for approximately 43%. 

Below is a breakdown of the VUSXX and VMFXX by asset type as of September 30, 2023. 

 

VUSXXVMFXX
Repurchase Agreements3.70%42.20%
U.S. Govt. Obligations2.20%29.90%
U.S. Treasury Bills94.10%26.90%

 

As the table shows, VFMXX has a more diversified portfolio than VUSXX, which has nearly 95% of U.S. Treasury bills. 

VFMXX has an edge in diversification because it has a more evenly distributed portfolio than VUSXX.

Source: VUSXX, VMFXX

 

Minimum Investment – Tie

VUSXX 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 VUSXX

VUSXX has a slight edge with an expense ratio of 0.09% compared to 0.11% for VMFXX.

While the difference between their expense ratios is marginal at only 0.02%, 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 VSUXX

VUSXX and VMFXX are money market mutual funds with the same tax treatment.

Both VUSXX 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 VUSXX holds the majority of the portfolio in U.S. Treasury Bills, it is likely to be more tax-efficient.

 

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 VUSXX and VMFXX are money market mutual funds, they offer the same rules and restrictions in terms of tax-loss harvesting.

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

 

Performance – VFMXX Wins

VUSXX and VMFXX are money market mutual funds with similar portfolio management styles. The biggest difference between these two money market funds is their portfolio diversification, with VSUXX having the majority of the portfolio being U.S. Treasury Bills.

Let’s take a look at how the different portfolio compositions impact their performance. Below, we can see the annual performance of both VUSXX and VMFXX.

 

Total Return by NAV
YearVUSXXVMFXXDifference
20221.50%1.55%-0.05%
20210.01%0.01%0.00%
20200.47%0.45%0.02%
20192.14%2.14%0.00%
20181.80%1.78%0.02%
20170.79%0.81%-0.02%
20160.25%0.30%-0.05%
20150.02%0.04%-0.02%
20140.01%0.01%0.00%
20130.01%0.02%-0.01%
20120.02%0.01%0.01%
20110.02%0.01%0.01%
20100.01%0.02%-0.01%
20090.25%0.40%-0.15%
20082.10%2.53%-0.43%

Source: VUSXX, VMFXX

 

As shown in the table, VUSXX, and VMFXX had a similar annual performance since 2008. We can also see that VMFXX has outperformed VUSXX in 8 out 15 years since 2008. 

That said, since 2010, the highest difference between their annual total return by NAV is only 0.05%. Overall, the performance of these two are very similar in terms of annual NAV. 

Now, let’s take a look at the cumulative performance of both VUSXX and VMFXX.

 

1-Yr3-Yr5-Yr10-Yr
VUSXX4.55%5.25%8.57%11.12%
VMFXX4.61%5.33%8.65%11.27
Difference-0.06%-0.08%-0.08%-0.15%

Source: VUSXX, VMFXX

 

As shown in the table above, VMFXX has outperformed VUSXX at every cumulative performance metric. That said, the difference is small, with a maximum outperformance of only 0.15% over 10 years and only 0.06% over a 1-year period. 

 

Dividend Yield – Split Decision (VMFXX Wins in 2023 YTD)

The dividend yield is a ratio that shows how much a mutual fund pays out in dividends each year relative to the share price. 

Since both VUSXX and VMFXX have a similar portfolio composition, we expect them to generate a similar dividend yield. The table below shows the historical dividend yield for both VUSXX and VMFXX.

 

Dividend Yield
YearVUSXXVMFXXDifference
20232.98%3.04%-0.06%
20220.33%0.33%0.00%
20210.11%0.10%0.01%
20201.42%1.42%0.00%
20191.97%1.97%0.00%
20181.19%1.19%0.00%
20170.44%0.48%-0.04%
20160.12%0.16%-0.04%
20150.00%0.01%-0.01%
20140.01%0.02%-0.01%
20130.01%0.01%0.00%

Source: VUSXX, VMFXX

 

Similar trend is apparent with the dividend yield as the total return by NAV, with VMFXX outperforming VUSXX for the majority of years from 2013.  

From 2018 to 2022, these two money market funds have performed nearly identically. However, as of September 2023, there is a clear edge for VMFXX, outperforming VUSXX by 0.06%.

 

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

VSUXX and VMFXX are two conservative money market funds offered by Vanguard, so how do you decide which money market fund to invest in?

The first thing you must consider when deciding between VSUXX and VMFXX is the level of portfolio diversification you want. While both mutual funds invest in money market investments, they have different compositions. 

VMFXX is more diversified in the sense that its investments are split between U.S. Treasury bills, U.S. government Obligations, and repurchase agreements. On the other hand, VSUXX portfolio has a total of 94.10% invested in U.S. Treasury bills. 

Also, consider the overall performance of both money market funds. Both VUSXX and VMFXX had very similar performances when comparing their annual total returns, cumulative total returns, and dividend yields. While VMFX has an overall edge in performance in all categories, the outperformance is marginal and doesn’t exceed more than 0.06% in any performance metric. 

Regarding the taxes, both funds have very similar performance in terms of tax efficiency and expense ratio.

While VUSXX has a slight advantage when it comes to expense ratios, being approximately 0.02% cheaper than VMFXX, this difference is marginal. Similarly, since the VUSXX portfolio is mostly comprised of U.S. Treasury Bills, it’s likely to have a slightly lower tax burden and be more tax efficient. 

Overall, if the exact portfolio composition of your money market fund is not a priority, then you might lean more into VUSXX.  On the other hand, if you want a more diversified portfolio and you want the highest possible performance, then investing in VMFXX might be better for you.

 



 

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