[hagy]

The default settlement account, Vanguard Federal Money Market Fund, has incredibly low credit risk because its assets are short-term US Federal gov debt and Federal Reserve repurchase agreements. [1] Neither of those entities have substantial default risk. Further, the global financial chaos of significant defaults from either of those entities would likely render FDIC insurance ineffective because too many banks would fail simultaneously due to their assets in those classes.

[1] https://investor.vanguard.com/investment-products/mutual-fun...

[adastra22]

Or Vanguard could collapse from the inside because some C-level officer was dipping into customer funds to cover some bad investment, and everyone takes a haircut on the holdings. On top of the drop in market value because most vanguard customers invest in vanguard funds, which suddenly become a toxic asset. Your "safe" money market asset is considered equal and paid out pro-rata, sharing the loss of those mutual funds.

Meanwhile the FDIC insured savings accounts at the bank next door are just fine in the midst of this total and complete market meltdown, and those account holders decide it's time to diversify and pick up some cheap stocks.

That's just one scenario. “Low risk” is not the same as no risk, and the difference isn't important until it suddenly is.

[jquast]

https://investor.vanguard.com/investor-resources-education/a...

I’m very certain that even in the crazy case you have outlined, SIPC insurance would cover up to a half million. Some brokers provide additional insurance beyond the regulatory requirements.

I think everyone recently learned about FDIC because of SVB etc., but I think it’s important that people are also aware of SIPC, and especially to consider that there is no crypto currency exchange that offers any such insurance of any kind, https://www.forbes.com/advisor/investing/cryptocurrency/cryp...

[therealrootuser]

Your example is a poor one, and does not represent the actual risk of money market funds.

Customer assets at brokerage are required to be held by a 3rd party custodian. Customer assets are not held at the brokerage itself and cannot be touched. An executive cannot merely "dip into customer funds" to cover a bad investment. Brokerage firms are regularly audited for this exact scenario. If your assets were to go missing, the SIPC would liquidate assets of the firm itself as necessary and cover the rest up to $500,000.

The actual risk is of a MMF "breaking the buck" and being unable to return your money. In 1994, a fund went under and was only able to return 94 cents on $1. In 2008 a fund went under because of its toxic Lehman Brothers holdings. This is why you should understand what is inside of that fund before investing in it.

For example, VUSXX is "is required to invest at least 99.5% of its total assets in cash, U.S. government securities, and/or repurchase agreements that are collateralized solely by U.S. government securities or cash." These are not unregulated funds either; the SEC has been significantly increasing the scrutiny and regulation of MMFs both recently and historically.

The question you really should be asking is whether you think US treasury bills are sufficiently safe, not whether Vanguard is doing something both obvious and illegal.

[hagy]

That is impossible because each Vanguard mutual fund is a distinct legal entity. Assets cannot be moved between funds. See Vanguard safety for more details: https://www.bogleheads.org/wiki/Vanguard_safety

[atombender]

Vanguard has about 30 SEC registrants (formally, Delaware Statutory Trusts) for all its US mutual funds. But it has a lot more than 30 funds. For example, VMFXX is managed by Vanguard Money Market Reserves, which also holds VUSXX and the former VMMXX.