The role cash plays in your portfolio

Cash is a part of a diversified portfolio. How you allocate your investments across stocks, bonds, and cash is one area of investing you can control. In fact, research has shown that, if you have a diversified portfolio, 88% of your experience (the volatility you encounter and the returns you earn) can be traced back to your asset allocation.*

Cash investments are very short-term investments that can lower the overall risk of your portfolio. Because cash tends to be safer, you can use it as a “parking lot” if you:

  • Are still deciding how to invest your money.
  • Need to spend your money in the next 3–6 months, for example, for college tuition or a down payment on a house.

One popular cash investment is a money market mutual fund.

Why invest in money market funds now?

Because interest rates are rising, now’s a good time to check the yield on your money market funds, savings accounts, certificates of deposit (CDs), and brokerage settlement funds to see how much more you’re earning.

If you invest in money market funds, you’ll likely earn about the same income as, or sometimes more than, other banking products. And while these funds don’t have the additional insurance of a banking product, they also offer:

  • Easy access to your money. Money market funds are highly liquid. You can quickly transfer money between your bank and mutual fund.
  • Greater flexibility. Unlike a CD, you won’t be subject to a penalty for withdrawing your money early.
  • A reduction in market risk. Money market funds invest in high-quality, ultra-short-term securities, like Treasury bills and CDs, greatly reducing your market risk compared with stock or bond funds.

Why invest in a Vanguard money market fund?

Vanguard is built differently, and our money market funds are no exception. With our funds, you’ll get:

  • Superior returns. Our funds have produced exceptional returns compared with their peers. In fact, 100% of Vanguard money market funds performed better than their peer-group averages over the past 1-, 3-, 5-, and 10-year periods.**
  • Low costs. Since money market funds have lower yields than more aggressive investments, costs play an even bigger factor. The less you pay to invest, the more you keep. The average expense ratio on Vanguard’s money market funds is 57% less than the industry average.
  • Fixed income expertise. “We’ve relentlessly focused on maintaining high standards for managing credit in our portfolios, preserving liquidity, and guarding against disruptive redemption activity,” said Randy Lee, head of fixed income product management at Vanguard.
  • A commitment to you. We’ll continue to keep costs as low as possible because Vanguard is a community of client-owners. You own the funds, and the funds own Vanguard.

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“Our money market funds provide high-quality and liquid investments in both stable financial markets and periods of uncertainty, offered at a low cost and managed by a deeply experienced team,” said Lee. “This formula allows us to provide highly competitive yields while maintaining the investment prudence and stability investors seek in a money market product.”

We’re here to help

If you’re looking for a cash investment, we can help you reach your goals.

*Source: Vanguard, The Global Case for Strategic Asset Allocation (Wallick et al., 2012).

**For the periods ended December 31, 2017. 9 of 9 Vanguard money market funds outperformed their Lipper peer-group averages. (519, 434, 431, and 391 funds were in the peer category for the 1-, 3-, 5-, and 10-year periods, respectively.) Results will vary for other time periods. Only mutual funds with a minimum 1-, 3-, 5-, or 10-year history, respectively, were included in the comparison. Source: Lipper, a Thomson Reuters Company. The competitive performance data shown represent past performance, which is not a guarantee of future results. View fund performance

Vanguard average money market expense ratio: 0.13%. Industry average money market expense ratio: 0.30%. All averages are asset-weighted. Industry averages exclude Vanguard. Sources: Vanguard and Morningstar, Inc., as of December 31, 2017.


You could lose money by investing in a money market fund. Although these funds seek to preserve the value of your investment at $1 per share, they cannot guarantee they will do so. Some funds may impose a fee upon sale of your shares or may temporarily suspend your ability to sell shares if the fund’s liquidity falls below required minimums because of market conditions or other factors. An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The fund’s sponsor has no legal obligation to provide financial support to the fund, and you should not expect that the sponsor will provide financial support to the fund at any time.

There may be other material differences between products that must be considered prior to investing.

All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss.