Will money market accounts, such as Vanguard's VMFXX, remain safe and stable?

**Money market accounts, including Vanguard's VMFXX, are designed to be safe and stable**, but they are not without risks. Here's an analysis to support this conclusion: 1. **Purpose and Design**: Money market accounts, such as VMFXX, are designed to provide a safe haven for investors' short-term funds. They invest in short-term, high-quality debt instruments, which are considered low-risk. 2. **Regulatory Oversight**: These funds are heavily regulated, with strict rules governing their investments and operations. For example, US money market funds must hold at least 25% in daily liquidity and 50% in weekly liquidity. 3. **Liquidity Fees and Gates**: Many money market funds have liquidity fees and gates to help stabilize the fund during market turmoil. This mechanism is intended to prevent large redemptions during market downturns, which could destabilize the fund. 4. **Interest Rate Risk**: While money market funds are generally safe, they are not immune to interest rate risk. When interest rates rise, the value of the fund's investments can decline, and vice versa. However, this risk is typically lower than that of other fixed income investments. 5. **Historical Performance**: Money market funds have historically provided a stable return with low volatility. For instance, Vanguard's VMFXX has provided yields between 4% and 5% over the past couple of years. 6. **Market Conditions**: In a low-interest-rate environment, money market funds can become even more attractive as they offer higher yields than savings accounts. However, as interest rates rise, the returns on these funds may decline. 7. **Credit Risk**: Although money market funds invest in high-quality debt instruments, they are not completely free from credit risk. If the issuer of a bond defaults, the fund could lose some or all of its investment. **Conclusion**: Vanguard's VMFXX and similar money market accounts are expected to remain safe and stable due to their design, regulatory oversight, and historical performance. However, investors should be aware of the potential impact of interest rate changes and credit risks. In a changing interest rate environment, while the stability of these funds may be challenged, they remain a crucial component of a diversified investment portfolio for those seeking capital preservation.