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Is Vanguard's VFSUX a good place for Emergency Cash and Down Payment on Real Estate?
Old 03-07-2011, 02:27 PM   #1
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Is Vanguard's VFSUX a good place for Emergency Cash and Down Payment on Real Estate?

Is Vanguard's Short Term Investment Grade Adm (VFSUX) a good place to put emergency need money and/or down payment for a future primary residence?

I currently have the money in a money market account that is only earning about .75%.

The emergency money account could be needed as soon as tomorrow. Or, I may never need to use it. This money would be used to pay expenses if I was laid off from my job.

The down payment money may need to be used for a down payment on a primary residence anytime between now and the next ten years.

Is VFSUX a good place to put this type of money, in light of how I may need to make use of this money?

I am trying to earn a better return than .75% without exposing the money to unnecessary additional risk.

Thank you for your advice.
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Old 03-07-2011, 03:14 PM   #2
 
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I have 1/3 of my cash in VFSUX, 1/3 in CD ladders and 1/3 in a bank account that pays 3% interest.
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Old 03-07-2011, 03:23 PM   #3
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Originally Posted by Tiger View Post
I have 1/3 of my cash in VFSUX, 1/3 in CD ladders and 1/3 in a bank account that pays 3% interest.
Where can I find a bank account that pays 3% interest?
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Old 03-07-2011, 05:26 PM   #4
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Be sure to see its quarterly performance in 2008. I think it lost about 10%, but recovered. You'll need to be able to live with that possibility.
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Old 03-07-2011, 06:03 PM   #5
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If you can handle the possible changes in share price it would be a good choice. Normal range seems to be betweem $10.40 and $10.80 per share, but it did drop down to $9.60 or so during the depths of the financial crisis.
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Old 03-07-2011, 07:12 PM   #6
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That's a great chart that should strike fear in to the casual observer because the Y-axis doesn't start at 0 and it charts price -- not total return.

I have held this fund for the entire time charted. It is true that the fund dropped 10% in value even though it might look like 80% to 90% from that chart. Of course, the total return over those years is very good.

If you want to use this fund, I suggest that you set your goal 10% higher than you normally would shoot for. For example, if you need a $50K emergency fund, then have a $55K emergency fund instead.
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Old 03-07-2011, 08:58 PM   #7
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I am trying to earn a better return than .75% without exposing the money to unnecessary additional risk.
In addition to the credit risk reflected in the chart above, also remember interest rate risk. There is no guarantee this fund will earn better than 0.75%. With a 1.9% yield, and a 2.2 year duration, you only need short rates to go up 100bp for this fund to lose money.
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Old 03-08-2011, 08:42 PM   #8
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That's a great chart that should strike fear in to the casual observer because the Y-axis doesn't start at 0 and it charts price -- not total return.
<snip>
And how many casual observers do we have around here? Not many, methinks.

Besides, I couldn't figure out how to change the graph to start at zero - I actually did try.
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