Vanguard is well-known for its variety of investment options, including a selection of money market funds tailored to meet investor requirements. These funds are a great option for doctors and healthcare professionals seeking to invest in low-risk and easily accessible investment funds that provide modest returns. This article analyzes and compares two money market funds offered by Vanguard—Vanguard Cash Reserves Federal Money Market Fund Admiral Shares (VMRXX) and Vanguard Federal Money Market Fund (VMFXX)—to help you determine the best option for your investment approach.
Understanding Money Market Funds
Money market funds are mutual funds that invest in short-term, high-quality investments issued by government and corporate entities. They are designed to offer high liquidity with relatively low risk, making them a popular choice for conservative investors seeking a safe place to store their cash. Vanguard’s money market funds are particularly noted for their stability and competitive yields.
Fund Overviews: VMRXX & VMFXX
Let’s dive into the specifics of each fund to understand their investment strategies, fees, and potential returns.
Vanguard Cash Reserves Federal Money Market Fund Admiral Shares (VMRXX)
- Investment Strategy & Portfolio Composition: VMRXX invests primarily in U.S. government securities, cash, and repurchase agreements backed by U.S. government securities or cash. By regulation, at least 99.5% of the fund’s assets must be in these very low-risk investments. Over 25% of its assets are in securities issued by financial companies, including government-sponsored ones.
- Historical Performance & Returns: VMRXX has a history of delivering competitive returns compared to other money market funds.
- Expense Ratio & Yield Details: Expense ratios and yields are subject to change. At the time of this article’s publishing, the expense ratio for VMRXX is 0.10%, with a 7-day SEC yield of 5.28%.
- Key Advantages & Drawbacks: VMRXX has the potential to offer a slightly higher yield compared to VMFXX due to its ability to invest in a limited portion of non-government securities. However, this means it also carries a marginally higher risk.
Vanguard Federal Money Market Fund (VMFXX)
- Investment Strategy & Portfolio Composition: VMFXX is Vanguard’s default settlement fund, automatically investing uninvested cash. Like VMRXX, at least 99.5% of the fund’s assets must be in the low-risk investments of cash, U.S. government securities, or repurchase agreements backed by cash or government securities.
- Historical Performance & Returns: VMFXX has a history of steady performance within the money market fund category.
- Expense Ratio & Yield Details: Expense ratios and yields fluctuate over time. At the time of this article’s publishing, the expense ratio for VMFXX is 0.11%, with a 7-day SEC yield of 5.27%.
- Key Advantages & Drawbacks: VMFXX’s main advantage is its convenience as a default settlement fund. It automatically invests uninvested cash and offers a safe place for cash holdings. Since it prioritizes safety, its returns might be slightly lower than VMRXX, which has the ability to invest in a small portion of non-government securities.
Comparison of VMRXX vs. VMFXX
While VMRXX and VMFXX are both Vanguard money market funds, there are some key differences between the two. This comparison dives into their key features, investment strategies, and potential benefits to help you make an informed choice.
Performance Comparison
As illustrated in the charts below, VMRXX has consistently outperformed VMFXX by a small margin in net asset value (NAV) each year, and—more notably—in cumulative returns. (That said, it’s important to remember that past results can’t guarantee future performance.)
Annual Total Returns by NAV
| Year | VMRXX | VMFXX | Difference |
| 2023 | 5.10% | 5.09% | 0.01% |
| 2022 | 1.56% | 1.55% | 0.01% |
| 2021 | 0.02% | 0.01% | 0.01% |
| 2020 | 0.57% | 0.45% | 0.12% |
| 2019 | 2.29% | 2.14% | 0.15% |
| 2018 | 2.01% | 1.78% | 0.23% |
Cumulative Returns
| Period | VMRXX | VMFXX | Difference |
| 1-Year | 5.38% | 5.36% | 0.02% |
| 3-Year | 8.65% | 8.61% | 0.04% |
| 5-Year | 10.86% | 10.59% | 0.27% |
| 10-Year | 16.06% | 14.74% | 1.32% |
Expense Ratios & Fees
The expense ratios for VMRXX (0.10%) and VMFXX (0.11%) are very close, with a minimal difference that is unlikely to significantly impact overall returns. Both funds have no purchase or redemption fees, making them cost-effective options for investors.
Risk Comparison
Both funds are considered low risk. However, VMRXX’s inclusion of securities issued by financial companies and government-sponsored enterprises introduces a slight increase in credit risk compared to VMFXX, which focuses more on U.S. government securities.
Tax Impact Analysis
Both VMRXX and VMFXX may offer partial state tax exemptions on the interest they distribute, depending on your state of residence and tax bracket. Investors in high-tax states may benefit more from a fund with a larger percentage of tax-exempt interest.
Use Cases & Investment Strategies
VMRXX might be more suitable for investors seeking slightly higher yields who are comfortable with the minimal increase in credit risk associated with its holdings of financial securities. It prioritizes return over a completely hands-off approach (though investors can simply choose VMRXX as their default holding and rebalance occasionally if needed).
VMFXX, as a default settlement fund, is ideal for investors who prefer a hands-off approach and value the convenience of having their cash automatically invested in a low-risk, liquid fund. Its cautious strategy makes it a good choice for more conservative investors.
Expert Opinions & Market Trends
Financial experts generally regard both VMRXX and VMFXX as solid choices for conservative investors seeking safe, low-risk investments for their cash holdings. VMRXX may offer a slightly higher potential yield compared to VMFXX, but the difference is typically modest. Both funds are likely to see their yields continue to fluctuate along with changes in interest rates.
The Bottom Line: Which Money Market Fund Is Right for You?
Both VMRXX and VMFXX are excellent money market funds, each with its unique advantages and drawbacks. When choosing between these two funds, consider your personal investment goals, risk tolerance, and tax situation to determine which option is right for you. Additionally, consider consulting with a financial advisor to help you gain a clearer picture of how a money market fund could fit into your financial strategy.
Additional Investment Fund Resources
Want to continue exploring different investment fund options? Check out the other articles in this series to learn more:
- Why You Should Consider VUSXX
- QQQ or QQQm—Choosing the Best Nasdaq-100 Fund
- What Are the Different Types of Index Funds?
- A Comprehensive Guide to Fidelity Mutual Funds
- VFIAX vs. VOO – Which Index Fund Is Right For You?
- FSKAX or VTSAX? Choosing the Right Index Fund
- Why You Should Consider VTSAX
- What You Need to Know About FZROX & Other Zero-Fee Funds
- Is FSKAX the Right Fidelity Fund For You?
- FSKAX or FZROX? Choosing the Right Fidelity Fund
- Assessing the Value of the Vanguard S&P 500 ETF (VOO)
- FXAIX or VOO? Choosing the Right Index Fund
- An Introduction to the Fidelity 500 Index Fund (FXAIX)
The information provided in this blog post is for general informational purposes only and should not be construed as financial advice. For specific financial counsel on investments, we strongly recommend seeking the guidance of a qualified expert.
