Vanguard unveils low-cost ETFs to solve liquidity dilemmas

Vanguard has emphasized the importance of liquidity management for investors seeking to balance short-term financial needs with long-term investment goals. Massy Williams, CFA, head of Vanguard Wealth Management, highlighted that clients often seek guidance not only on achieving long-term investment objectives but also on managing near-term liquidity requirements. Vanguard outlined three primary categories of liquidity management options: asset accounts, secured credit, and unsecured credit, each with distinct trade-offs and costs.

When managing liquidity, investors can draw from asset accounts such as bank accounts, cash management accounts, money market funds, and investment accounts. Vanguard’s Cash Plus Account offers higher yields compared to traditional savings accounts while maintaining liquidity. Money market funds provide another option for short-term liquidity needs, with higher interest rates and ready access once transferred to a bank account. However, investors should be cautious about selling investment assets, as it can impact long-term goals and may trigger taxable events.

Secured credit options include margin loans, 401(k) loans, and home equity lines of credit (HELOCs). These can be beneficial when an investor requires liquidity but does not want to deplete savings or sell investments. Margin loans, for instance, offer flexible repayment terms and no credit check requirements, but they expose the investor to potential losses if the collateral’s value declines. Similarly, 401(k) loans reduce retirement savings and require repayment within a specific timeframe. HELOCs offer competitive rates but carry the risk of losing property if repayment terms are not met.

Unsecured credit, such as personal loans and credit cards, provides liquidity but at higher costs. These options often come with higher interest rates and can increase debt load. Garrett Harbron, J.D., CFA, CFP®, head of Global Wealth Planning Methodology at Vanguard, emphasized the importance of disciplined repayment and understanding loan terms to manage debt effectively. He advised investors to ensure that their monthly budgets can accommodate ongoing credit expenses and to thoroughly review the terms of any loan agreement.

To address short-term liquidity needs more precisely, Vanguard announced the launch of two new ETFs—Vanguard Ultra-Short Treasury ETF (VGUS) and Vanguard 0-3 Month Treasury Bill ETF (VBIL)—planned for early 2025. These index ETFs will offer low-cost exposure to U.S. Treasury securities with short durations and low volatility. Each ETF is expected to have an expense ratio of 0.07%, positioning them as low-cost leaders in their respective categories. Daniel Reyes, Global Head of Vanguard Portfolio Review Department, stated that these ETFs will bridge the gap between Vanguard’s money market funds and existing ultra-short-term bond offerings, allowing investors to build more tailored portfolios.

Vanguard’s approach to liquidity management reflects the broader financial strategy of maintaining a balanced mix of cash and credit options to prepare for various financial scenarios. The firm encourages investors to regularly assess their liquidity needs, minimize costs by choosing cost-effective solutions, and align their strategies with long-term goals such as retirement savings and wealth preservation.

The new ETFs will be advised by Vanguard Fixed Income Group, which has over 40 years of experience in managing index funds and ETFs with disciplined tracking processes and robust risk management. This expertise positions Vanguard to offer innovative solutions that meet evolving investor needs in a dynamic market environment.