My move from VMMXX to VBTLX

In my recent post Taking Advantage of Mr. Bear, I described how this current decline offered me the opportunity to move from VTSAX (stocks) to VMMXX (cash) in my taxable account while simultaneously moving an equal amount of VBTLX (bonds) to VTSAX in my IRA.

This had the effect of maintaining my stock & bond/cash asset allocation and freeing up cash without a capital gains tax due.

Now (Friday March 27th) I’ve moved that money from VMMXX to VBTLX*.

Here’s why…

Why I moved from VMMXX to VBTLX

Basically for a lower cost and a higher yield.

VMMXX  has an ER (expense ratio) of .16% and a current yield of 1.25%.  VBTLX’s ER is .05% and its yield is 1.90%.

On the other hand, VMMXX is a money market fund (think cash) and its share price is fixed at $1.00. A key advantage is that there is no volatility in the share price. 

As a bond fund, the share price of VBTLX can and does move up and down with interest rates. So there is some volatility, but it is fairly minor.

But wait, some of you may be thinking, with interest rates at rock bottom levels, aren’t bonds risky these days?

For individual bonds this is true and it is called “interest rate risk.” When rates rise, the price of bonds falls. The longer the bond term, the greater this risk is. Many believe, at this point, rates have no where to go but up over time.

But VBTLX has two great advantages that mitigate this risk.

  1. As a total bond fund, it holds bonds of all different maturities. Those with shorter maturities are less subject to interest rate risk.
  2. Since it holds thousands of bonds, all bought at various times, some are always maturing. This means the fund can reinvest in new bonds at the higher rates if  rates climb.

If this last part has you scratching your head, this post will explain interest rate risk and bonds in general.

Why VBTLX instead of BND?

BND is is the ETF (exchange traded fund) version of VBTLX. In a future post, I’ll talk about the differences between mutual funds and their ETF versions and the advantages of each. (If you can’t wait, you’ll find links in this post that will help.)

In this case, only one the advantages of ETFs has any value to me: The lower ER of BND, .035% vs. .05% for VBTLX. But that is only a .015% difference.

Still, .015% is .015%.

But VBLTX gets the nod because…

  • At the moment I am not set up to buy ETFs through Vanguard on-line. It would require a phone call, and with this bear market their phone lines are jammed. 
  • I can buy VBTLX with a couple of mouse clicks and be done with it.
  • After all these years of talking about VBTLX, were I to change to BND, I would be faced with an endless stream of questions as to why from new readers who didn’t read this post. 🙂

*To be clear, we moved only the money from the previous move. The money that was already in VMMXX remains the same so our allociation also remains the same.


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    • jlcollinsnh says

      Hi Josh…

      That’s interesting and I am not sure what to make of it.

      I can tell you my trade on Friday the 27th went through at $1 per share. Plus, if VMMXX were to “break the buck” it would be major financial news.

      My guess is, just as it was slightly higher in previous months and the price remained $1, these are just techical variations that don’t change the price.

  1. Ignacio Lopez says

    Some additional thoughts on these two securities that may help. The average maturity of VMMXX is 37 days vs. 8.3 years for VBTLX so you are acquiring more interest risk. Also VMMXX has only US government paper vs. mortgage backed and corporate securities in VBTLX. I would compare VMMXX to what banks can give you on their savings accounts.

    • josh says

      Ignaco – it is incorrect to say that VMMXX (Prime Money Market) has “only US government paper”. Per Vanguard disclosure as of 2/29/2020 about 30% of the fund was invested in Treasury bills/government obligations while 61.8% was invested in a category called “Yankee/Foreign”. See Distribution by issuer on the link below.

      Do you know what “Yankee/Foreign” refers to? How do you get comfortable having your money invested in this category?

  2. Dave @ Accidental FIRE says

    “I can buy VBTLX with a couple of mouse clicks and be done with it.”

    Amen brother. Time is money, it’s not worth wasting lots of it fiddling around with investments. Folks who claim to beat the market buying individual stocks are so often not counting the endless hours they spend researching, and then filing horrendous tax returns the next year detailing all their transactions. They probably didn’t beat the market after that “time tax” is accounted for. Unless it’s your idea of fun, it’s not worth it.

    I have a huge chunk in VBTLX and will always keep it. Right now I’m just holding tight.

  3. Brian Catalano says

    excellent and informative as always, thank you. For clarification, the move from VMMXX to VBTLX is also in your taxable account?

  4. Alfie says

    Hey Jim,

    Thanks for all you to to share your knowledge with the world!
    I’m wondering why hold cash in VMMXX versus a savings account with an online bank that offers a better interest rate. For example, Capital One 360 offers 1.50% on a savings account. Am I missing something?


  5. BC says

    always been a bit wary of placing VBTLX in taxable for tax efficiency purposes. To maintain overall AA, we have some short (VBIRX) and intermediate term in our Vanguard taxable (401K, IRA are all bonds) with our entire stock allocation in VTSAX. The bonds make up years 4 and 5 of our “cash” needs as we head into FIRE within the next year. Would prefer the simplicity of all in one fund like VBTLX for the bonds but probably just splitting hairs at this point?

    • jlcollinsnh says

      Yeah, VBTLX is not ideal for taxable accounts. But I am holding money in it I might spend shortly.

      Being a total bond market fund also means, in effect, VBTLX balences out to be an intermediate bond fund. (The long bonds and short bonds offset each other.)

      So it is much the same as what you are already doing.

    • jlcollinsnh says

      I didn’t Todd…

      …and I probably should have.

      In many ways VTEAX would be the better choice in a taxable account for us.

      I’d have to think about how I feel about muni-bonds a bit as I’ve never considered owning them.

      You and Alfie above are taking me to school. 🙂

  6. TJ says

    I am in the process of reducing my risk as I’m already retired, without the recommended back-up funding. Was all in on VTSAX. It’s time for me to build up my bond and cash allocations, though it isn’t time to sell any VTSAX. I’m still adding to my portfolio and not having to withdraw anything today. For me, that means new money being invested goes to cash or bonds. With return rates as low as they are, cash wins this month, and probably will for the next few months, at least. Have been fortunate the last couple of years and purchased some CDs, some paying as high as 3%, and locked those in for the next five years. CD’s today aren’t paying that much so keep mostly to cash. When CD rates come up a little, I throw a little that way when I can.

    It seems the trick is to put new money where it makes the most sense for wherever someone is on the road to financial independence. I’m fortunate to be in a position where I’m still funding my retirement buckets and not withdrawing from them. If I was younger, I would still be investing in VTSAX with my eye on 30-40 years into the future, and loving the current correction. I can purchase stocks today for 25% less than I had to pay a month or two ago. Have been building my VTSAX holding for years now so even at todays corrected cost, my cost basis is below that, and in my ROTH. It makes no sense to me to even consider selling any of it.

    Have chosen VMMXX. Your argument for VBTLX is a good one and has me thinking. I have to go back to the age old question “Which one helps me sleep better at night?” For me, today, that answer is VMMXX.

    It seems the goal keeps changing with time and more information. I’m okay with putting new retirement money into cash and CD’s monthly, and simply letting my VTSAX do what it’s going to do. Have a plan, that if VTSAX goes a lot lower than it is today (not likely), I will purchase a few shares. If it doesn’t, will simply keep adding to VMMXX until that bucket is filled (5 years expenses). I’m also working on getting my income stream, from cash and bonds, up. That works well with filling them up.

    From what I can see, it looks like you are doing your annual filling up of the cash (in your case bond) bucket. Is that close?

    Have loved and followed this site for a few years now. Have learned so much. I didn’t realize I needed to learn that much and am very grateful you have put this information out for all to see, and still maintain it. Thank you.

    Would you make different choices? Why?

    • jlcollinsnh says

      Hi TJ…

      What you are doing makes sense to me and seems a fine way to change your allocation without having to sell your VTSAX at an inopportune time.

      “From what I can see, it looks like you are doing your annual filling up of the cash (in your case bond) bucket. Is that close?”

      Not with the move I describe in the post. However, we are and have been building our cash position from income flow. But this is not new with or because of the bear.

  7. Mo says

    Hi Jim,
    For me I have noticed money market funds have high fees in general so I have been buying CD’s and rolling them over. Right now about one percent yield. Your move is a good choice since the Fed is now buying bond ETF’s and the yields might go negative soon. I think they will start buying stock ETF’s soon, maybe VOO like bank of Japan does for their markets to stabilize it. This market might start to get really scary soon and then they will come to the rescue , SP500 1600-1800.

  8. nice joy says

    Hi Jim
    What you think about the 2 trillion that is in the market now.? What is your take on this? Just curious.

    • jlcollinsnh says

      That is a very big question and tough to answer without getting political. And that is something I avoid here.

      It will, of course, further increase our national debt which was already approaching a stunning 24 trillion.

      That debt, in my view, is the most dangerous thing facing our country today. It disturbs me that none of our political leaders seem to pay it much heed.

      In the past, when a major event like WWII dramatically ballooned the debt, it was pared back in the good times that followed. That didn’t happen after the fiscal crises of 2007-8 and, well, now here we are.

  9. Nick P says

    Hi Jim,

    Thanks for all you do for the personal finance community. I noticed a reply above where you mentioned you probably would move to a higher yielding online savings account if you didn’t prefer Vanguard so much. Could be inconsequential but would you also enjoy another advantage of a Vanguard money market mutual fund in the form of qualified dividends tax rate, versus regular interest income on a savings account? Just curious if that’s how it works. Thanks!

    • jlcollinsnh says

      Interesting thought, Nick…

      …but money market funds don’t hold stocks that pay dividends.

      VMMXX, for instance, holds things like CDs, short term bonds and US treasuries that pay interest.

  10. Isaac says

    Hey Jim, big fan of your site and your book. Despite having read your book (multiple times… Kind of like a bible… Its a classic!), still feel like I should have transferred my workplace vtsax 401k into bonds… If only could have seen how bad would get! When the market goes back up, will definitively do some sort of 80-20 or 70-30 split between bonds and index to make me sleep better at night. Thanks for being the voice of reason Jim!

    • jlcollinsnh says

      Thanks for the kind words, Isaac!

      It is one thing to hear about a bear and another to live through one.

      Seems this one has been a learning experience and you now have a much better sense of your own tolerance for volatility. That’s very valuable.

      Sounds like you are doing exactly the right thing by staying the course until the market recovers and then adjusting your allocation when things are calm again.

  11. Rob says

    Wow! What an awesome resource you’ve provided!!

    Just recently heard of choosefi and then your Simple Path book. Scrambling to digest it all so I can open a Vanguard account ASAP.

    I am old enough to have known better than to be at this point in my financial life. Thankfully I have relatively little car/cc debt left.

    Thank you so much for sharing!

  12. Mike says

    I’m a little confused. Couldn’t you just sell VTSAX to buy VBTLX, avoiding to allocate the money in the VMMXX? I’m still pretty new about finance, so I appreciate your explanation.


    • jlcollinsnh says

      Hi Mike…

      Yes, I could have.

      But, for reasons mentioned in the post, I like to place orders near the end of the trading day.

      In this case I was cutting it too close and, since I didn’t have VBTLX set up in my taxable account, I just moved it to VMMXX.

      • Corey says

        “But, for reasons mentioned in the post, I like to place orders near the end of the trading day.”

        I didn’t see where you mentioned that in the post. Why do you like to place orders near the end of the trading day?



  13. Jeff says

    Thanks for explaining this Jim

    I’m about to start VBTLX in my asset allocation. I really like how easy your model is and thanks for the explanation on why. Gives me the warm fuzzies on execution.

    One questions tho, I didn’t know you had to call Vanguard to buy an ETF. Did something change? When I bought VTI in my taxable brokerage, I just did it through the app. I do love vanguard but they do need to hire a web/app designer. It is super clunky, I will attest to that. Haha.

    • jlcollinsnh says

      Hi Jeff…

      The fault is mine, not Vanguard’s.

      Since I haven’t bought individual stocks in a number of years and have never bought an ETF, I no longer have a brokerage account with them. That’s what I would have had to call to set up.

      You have one, so you can buy and sell with a few clicks. 🙂

      • Jeff says

        Oh copy that, yeah I don’t blame you. I make it sound like it’s super easy, but their interface is just archaic. Migrating my account was the easiest part, picking and navigating their funds from the inside was not. Good luck Jim. Thanks again!

        • Kim says

          I agree about Vanguard’s UI. I primarily use Fidelity, but I recently opened a Vanguard account to purchase a particular mutual fund. I have been on the phone a couple times with Vanguard representatives trying to find certain information that is readily available at Fidelity, but I was told that I would have to calculate it myself. However, the Vanguard reps did say they are revamping their website with a potential rollout in July 2020 (this was before the pandemic so might be pushed out). Hopefully it will be a better experience after the redesign.

          • Jeff says

            That would be awesome. I referred a friend to Fidelity to get started since I didn’t feel like coaching Vanguards interface step by step. I’m excited for this roll out now, that literally is probably the only downside to Vanguard that I can think of.

  14. Dionisio says

    Hi Jim,

    In short, in intl sales for 30 years (age 56) and just invested money without sophisticated knowledge or a plan…uh, until I just read your book…great stuff!

    Getting ready to retire with plans to live life fully and set and forget my investments, rebalancing (60/40) once a year. This is what I’ve done so far after reading: basically have VTI (60% in taxable) and still have the rest (40%) in IRA CDs maturing soon. I (hopefully) have a 30-40 year time horizon.

    I’d like to move away from CDs for my so-called fixed income portion and want to go with one bond fund (BND…(w/Etrade…no trading fees)). If I understand your approach, when the CDs mature, I should buy BND with that cash regardless if BND is at 52-week highs or interest rates are wherever. Again, once I buy I plan on looking where things stand once a year and rebalancing. I dislike overthinking and when I started reading elsewhere, there is so much “on the one hand…” stuff. Have I got it?


  15. cristina says

    You Rock.
    Just wanted you to know that in these really uncertain economic times, I so very much look forward to your wise posts….even if some of them are over my head!! LOL I’m learning through you, thank you.

    • jlcollinsnh says

      You are too kind, Christina…

      …But thank you!

      You rock too, and before long you’ll be rocking the concepts here just fine. 🙂

  16. scott says

    Are the VTI dividends 100% Qualified? Just curious. I have tried looking this up but still not 100% sure.

  17. D says

    My only problem with your bond fund plan is that 1.85% return guarantees that you lose. Even before taxes you are only matching inflation, and after taxes you lose by around 0.3%. Why guarantee a loss?

  18. Jordan Mantel says

    Hi Jim!

    Love the blog- thanks for all the insight!

    I’m thinking of making a change in terms of where I’m directing the majority of my cash savings.

    As of now, I’m spreading roughly $2K across my Roth, 401k, and taxable account every month, and 4k in an online savings.

    My question is: should I be putting the 4K of cash savings in my taxable account and load up even more on VTSAX? I was thinking of keeping 20K in an online savings, and then dumping everything else.

    Would love to hear your thoughts!

    Thank you.

  19. Stephen McNamara says

    This is a very interesting post, and raises a question for me that (I suspect) may prove to be a no-brainer; however, it will help immensely to make sure I understand how to apply your advice to my situation.

    I have $150k cash in a non-taxable account (won’t go into why at this point). I would like to “move” that cash into my taxable account (and as a side matter preferably access it without paying taxes). So I wonder if this is correct: By converting VTSAX to cash in my taxable account (which would be at a slight loss) and then then buying VTSAX with cash in my non-taxable account, it would seem I won’t truly suffer much if any “loss” (ignoring what is expected to be a small difference between “buy” and “sell” given the proximity of the transactions).

    I am aware of the “wash” rules, but do they apply if you don’t try to apply the loss to your taxes (and if I’ve simply “moved” VTSAX to the non-taxable account in exchange for cash, I could forego the “loss”). It just strikes me I end up the same position vis-a-vis VTSAX, but now I have access to the cash without having to withdraw it from a non-taxable account.

    “If it sounds too good to be true…” So is there something I’ve overlooked, other than potential “wash” issues?


  20. Mark says

    Jim, ive been sitting sidelines with funds over and above rainy day funds. would vbtlx be a substitute to a money market account. I may use funds to purchase real estate investment home in the next year or 2.

  21. Francesco says

    Hi Jim. I hope you and your family are doing well and staying safe.
    I’ve discovered your book a couple of weeks ago. I finished to read it and recommended to a friend of mine too. I loved your advices and I am happy to be more comfortable with the “investment world”. I meant to invest for long time but I was never able to understand how. It was always a tricky subject.
    So, thanks to you, I am educating myself; I read a lot, listen to podcasts, explore what Mr. Bogle says, and more.
    Few days ago I opened a Vanguard account. I am now ready to buy a VTSAX where I’ll put some money I had sitting and doing nothing for long time. I will hold it forever, put some money in it anytime I can, and forget about it.
    Some may argue that this isn’t the right time to start investing but I don’t care. I am fine with that and I have faith that things will go better.
    I’ll remember the “Coronavirus-time” as the period of my life that got me into investment.
    Thank you.


  22. Elmir says

    Hello, Mr. Collins,
    I am 33 and my 401k account is 90% invested in VTSAX. I am a bit concerned about the amount of cash that has been injected to the economy lately by the government. The probability of the next recession happening in a near future is very high. Should I just stay the course or switch to VBTLX until this storm passes?

  23. josh mason says

    Hi Elmir,

    To clarify, when you say “next recession” are you referring to the one that we are already in which started in mid March and has so far resulted in over 20 million lost jobs? If so, let’s hope it will remain a recession and not a depression.

    As Warren Buffett said at the Berkshire annual meeting last weekend, a year into the Great Depression people did not know they were in a Great Depression, they thought it was just a normal recession.

    Only in hindsight did we know…

    • Elmir says

      Hi Josh,

      Thanks for taking the time to comment. Not sure if it has been officially labeled as a recession yet, I would agree with you that we are in one. However, what’s perplexing is that the stock market’s behavior. As you said, 20 million jobs lost due to the great shutdown or lockdown whatever you would like to call it, yet stock prices are continuing to climb up.

      • Dave says

        Hi Elmir, At the age of 33 a big drop in the market can be a blessing as a 401k invester. When the market is down your payroll deductions to the 401k will get you many more shares than when the market was high. That would be the time to be sure to max out your contributions if at all possible.
        Sounds like you might think about your asset allocation though. If 90% in stock is going to keep you awake at night or possibly cause you to sell if the market would drop in half, it may be time to consider a safer allocation. This comes down to your risk tolerance.
        Technically we are not yet in a recession but that is only because that definition is that we have two straight quarters of GDP contraction. The first quarter of 2020 was down 4.8% which is bad, the second quarter which is not yet complete will be much worse. At that point it will be officially be a recession so at this point it is a foregone conclusion. What is not known is how bad it will get and for how long. Some say it will be just a recession while others say it will rival the “Great Depression”.
        Given what has already happened the stock market has done surprisingly well, reinforcing the idea that timing the market is next to impossible.

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