A Better Cash Option at Vanguard?

A Better Cash Option at Vanguard?

Got any plans for your pocket change? Vanguard does.

Since closing down its cash brokerage account offering in 2019 (due to lack of demand), Vanguard has been experimenting with new options to attract customers’ most liquid assets. Earlier this year, it began offering a new Cash Deposit account to select clients. Instead of sweeping cash in your brokerage account into a standard money market fund, Cash Deposit deposits the funds into an FDIC-insured account at one of Vanguard’s partner banks.

Recently, the firm has begun experimenting with another type of cash account, Cash Plus. Also an invite-only product, the new Cash Plus account is FDIC insured, and it’s separate from your standard brokerage account, allowing you to use it for paying bills or receiving deposits. At launch it offered a yield of 2.25%.

But it’s not all upside. Unlike similar options at Fidelity and Schwab, Vanguard’s new experiment doesn’t come with an ATM card or the ability to write checks. And perhaps more importantly, it’s not clear how competitive its yield will be going forward. The 2.25% it provided a few weeks ago was an improvement over Vanguard’s own Federal Money Market (2.17% at the time). But with the Fed still locked on to its inflation-reduction target, rates have continued to trend upward. As of this writing, the standard money market’s yield has crept up to 2.79%.

Given Vanguard’s history of tech woes, slow-rolling a new offering might not be a bad idea. But even if you’re one of the lucky few with an invite, we wouldn’t recommend jumping in with both feet quite yet. As Chairman Dan Wiener discussed on our podcast earlier this year, in the current rising-rate environment, there are more and more options emerging for stashing your cash. How much cash you’ll need to have on hand depends on your circumstances, but there are attractive options out there that can offer greater yields, like ultra-short-term bond funds or I-bonds. Don’t hesitate to talk to your adviser if you have a question about your financial plan.

Chart of the Week: Best and Worst Market Days Stick Together

 by Jeff DeMaso, Interim Chief Investment Officer and Director of Research

September lived up to its reputation as a lousy month for stocks as the S&P 500 index posted its third-worst September in six and a half decades. Then October got off to a cracking start with the S&P index gaining more than 2% on each of the first two days.

What this volatility tells me is that we are firmly in a bear market. During bear markets, stocks tend to move much more—both up and down—on any given day than in bull markets. In fact, the worst and best days in the stock market tend to cluster during bear markets.

Note: Chart shows daily index level for the S&P 500 from 12/31/89 through 10/4/22 along with 20 largest day-to-day gains in value (“Best”) and 20 largest day-to-day declines in value (“Worst”) over the period. Sources: Morningstar, Adviser.

As you can see, the 20 best days (triangles) and the 20 worst days (diamonds) in the stock market since 1990 occurred during the run-up to and then bursting of the tech bubble (1997–2002), the global financial crisis (2008–2009) and the COVID-19 panic (March 2020). Yes, there were also a few outliers, but you get the picture.

I think there’s some logic to all of this: When stocks are down a lot, trader and investor emotions are on edge. When emotions are running high, the market is poised for big swings day to day.

The fact that the best and worst days are clustered together is why you can’t let the bad days spook you out of the market—it would cause you to miss the best days. And you very much want to be there for those good days.

Adviser’s Takeaways

In a recent Takeaway, Account Executive and Financial Planner Diana Linn discussed five ways to bolster your financial plan.

We hope you find these episodes engaging and accessible, and please let us know if there are any topics you’d like us to address by sending an email to info@adviserinvestments.com!

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Adviser is a full-service wealth management firm, offering investment managementfinancial and tax planningmanaged individual bond portfolios, and 401(k) advisory services. We’ve been helping individuals, trusts, institutions and foundations since 1994. Adviser Investments and its subsidiaries have over 5,000 clients across the country and over $8 billion in assets under management. Our portfolios encompass actively managed funds, ETFs, socially responsible investments and tactical asset allocation strategies, and we’re experts on Fidelity and Vanguard mutual funds. We take pride in being The Adviser You Can Talk To. To see a full list of our awards and recognitions, click here, and for more information, please visit www.adviserinvestments.com or call 800-492-6868.

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