Vanguard has given most investors more and more choices for earning interest on their cash, or at least that’s true for those in retirement and brokerage accounts. Covering the bases last week, I kicked off my series on Vanguard’s cash management options.

However, not all Vanguard investors are so “cash rich.” In particular, I’m thinking about annuity holders and those saving for college via 529 plans. And maybe that’s just as well.

So, today, let’s dive into those accounts where investors must accept what Vanguard gives them or go elsewhere.

If you don’t own an annuity or have any dollars in a 529 plan, maybe you know someone who does and could benefit from this article—feel free to share it! Rest assured, I’ll discuss how I approach cash management outside of 529s and annuities in a follow-up article.

Cash for Life

Last week, I said Vanguard’s low-cost advantage meant that “the portfolio managers tending to your cash can keep risk low and still offer competitive yields.” Yet, annuities are one place where fees start adding up, even for Vanguard investors.  

Nowhere is that more true than at Money Market Annuity, but first, a few words of caution:

In 2020, Vanguard sold its annuity business to Transamerica. Vanguard continues to manage the underlying investment portfolios, while Transamerica is responsible for the administrative duties. Unfortunately, with the sale, transparency has declined to the point that it is challenging even to track the performance of Vanguard’s annuities.

The returns I reported through November 2020 were calculated based on each portfolio’s Accumulation Unit Value (AUV), which reflects the value of each annuity’s holdings and the fees being charged. In December 2020, I lost access to the AUV data.

As a workaround, beginning in December 2020, I began tracking the returns of the underlying “insurance” funds and applying an estimated monthly fee. I’m applying a 0.27% annual fee, approximating the 0.17% mortality fee and 0.10% administrative fee Vanguard charged before selling the business. Your fees and returns may differ, though not by much.

I do my best to provide accurate and timely information—particularly with Vanguard and Transamerica failing to do so—but if the day comes when I no longer have confidence in the numbers, I may have to stop reporting them entirely.

From what I’ve heard, Transamerica hasn’t solved Vanguard’s technology and service woes except that they took the burden off Vanguard itself. I’m sure that’s not endearing to the annuities’ shareholders.

On the tech side, I find navigating Transamerica’s website nearly impossible. It’s certainly even more difficult than Vanguard’s.

And on the service side, a subscriber shared his recent experience trying to annuitize his Vanguard annuity. Let’s just say that while he reports that the Transamerica reps were kind and professional, it took five months to execute the transaction and required the subscriber to chase down reps repeatedly. Throughout the process, Transamerica’s communication was sorely lacking.

You’ve been warned.

With that said, let’s return to Money Market Annuity, which was once a clone of the former Prime Money Market (now Cash Reserves Federal Money Market). Today, like Vanguard’s three taxable money market funds, Money Market Annuity is a “government” money market fund. The fund’s objective is to

provide current income while maintaining liquidity and a stable share price of $1.

Here’s the catch. That stable NAV target applies to the underlying fund before the annuity fees are accounted for. And those fees have taken their toll on the annuity’s returns.  

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