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Short Term Bonds
Old 11-14-2014, 10:19 PM   #1
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Short Term Bonds

Do any of you have a favorite short term bond fund? Is it actively managed or passive? I'm looking to add a small percentage of short term bonds to my portfolio. Thanks.
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Old 11-14-2014, 10:26 PM   #2
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I would consider an online savings account for such funds. Similar yield, no credit risk (FDIC insured) and no interest rate risk.

Vanguard ST Bond/Discover Bank Savings

Yield: 0.90%/0.85%
Duration: 2.7 years/nil
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Old 11-14-2014, 10:34 PM   #3
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What do you think of Vanguard Short Term Investment Grade Fund, VFSTX?
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Old 11-14-2014, 10:50 PM   #4
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What do you think of Vanguard Short Term Investment Grade Fund, VFSTX?
Bonds have risk, FDIC insured vehicles do not. Since the yield is the same, guess which one is the easy choice?
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Old 11-14-2014, 11:01 PM   #5
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Look at I bonds, too, as another alternative to a short term bond fund at least to the allowable purchase max, which there are ways to increase if you have numerous SS or EINs at your disposal - spouse, businesses, trusts, etc.
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Old 11-15-2014, 06:36 AM   #6
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What do you think of Vanguard Short Term Investment Grade Fund, VFSTX?
Well the short term IG bond fund has a better yield that the short term bond fund (1.52%) but a duration of 2.5 years. and effective maturity or 3 years. But... PenFed offers 3 year CD at 1.55% and it has no credit or interest rate risk so I would favor the CD unless liquidity is an issue.
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Old 11-15-2014, 08:04 AM   #7
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I also vote for CDs. My fixed income is in laddered CDs out to 5 years. It's over-weighted for two years or less. The average yield is poor (<1.5%) but I know the money will be there if/when interest rates go up. Any loss of principle is recovered as the CDs mature.
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Old 11-15-2014, 08:26 AM   #8
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You should take a look at your after tax income with both short term bonds and CDs' compared to Vanguard's short term and limited term muni bonds. Yes, there is a little risk but they work far better for me.
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Old 11-15-2014, 08:48 AM   #9
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I have VFSTX or the admiral equivalent VFSUX. Not because I think it's a great deal (sec yield is 1.5% although actual returns in the past few years have been higher) but because there's a limit to I-bond purchases and due to inertia (i.e my laziness) in setting up a rolling CD ladder.
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Old 11-15-2014, 09:24 AM   #10
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I should have started out stating that this money is in a 401k. I will be rolling it over to an IRA 45 days after I retire on Thanksgiving eve! So I can't take some of it out to invest outside the IRA constraints. This money wouldn't be touched until year 4 of retirement and would be paired with Vang. Wellington Fund.
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Old 11-15-2014, 09:45 AM   #11
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I also vote for CDs. My fixed income is in laddered CDs out to 5 years. It's over-weighted for two years or less. The average yield is poor (<1.5%) but I know the money will be there if/when interest rates go up. Any loss of principle is recovered as the CDs mature.
I am probably looking at something similar and will add my own inflation of 2% to the total for each CD! It will add a bit of drag on my portfolio but the money will be there when I need it.
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Old 11-15-2014, 10:08 AM   #12
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Per Vanguard website, VFSTX has been running around a !.7 to 1.8% distribution yield in recent months. I've used it as a parking space in lieu of money market funds, duration is about 2.5 years. I do monitor it somewhat closely as if it looks like interest rates may rise, I'll move the money elsewhere.
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Old 11-15-2014, 10:58 AM   #13
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I should have started out stating that this money is in a 401k. I will be rolling it over to an IRA 45 days after I retire on Thanksgiving eve! So I can't take some of it out to invest outside the IRA constraints. This money wouldn't be touched until year 4 of retirement and would be paired with Vang. Wellington Fund.
I'm in a similar situation having most of our money at VG in retirement accounts. So moving it to get a good CD rate is a pain.

In the last few years I've allocated about 1 or 2 years of spending to the short term bond investment grade fund, VFSUX. I make it my stepping stone to spending so that it will be constantly refreshed, generally from equity sales due to rebalancing. If one does this over many years, the duration risk is smoothed out. I'm not saying this will be a great deal as rates go up. At some point short rates could go up quickly, but viewing this in maybe a 10 year time frame will even things out.
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Old 11-16-2014, 01:20 PM   #14
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Do any of you have a favorite short term bond fund? Is it actively managed or passive? I'm looking to add a small percentage of short term bonds to my portfolio. Thanks.
Yes, I prefer a short term bond fund to savings or CDs. I'm more comfortable with a little volatility in price and getting dividend income on par with inflation than the alternative of locking in with alternatives that lose to inflation. I'm using VFSUX.
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Old 11-16-2014, 01:36 PM   #15
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I have a small 1% allocated to ST bond fund, I am basically all in stocks.
I would have more in bonds, but feel they along with stocks will drop when interest rates rise.
Basically, there is no good option out there.....
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Old 11-16-2014, 01:53 PM   #16
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Thanks for all the advice so far. I'm probably looking at 10 funds total with 5 of them being actively managed and the others index funds...so far. I will run them by the Vanguard CFP free services.
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Old 11-16-2014, 04:24 PM   #17
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good story on muni bonds in weekend issue of Wall Street Journal. They suggest taking a look at Vanguard limited term and Fidelity intermediate term muni bonds; along with a couple of other that I don't recall right now.......espeicially for those with high income and measuring after tax returns.
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Old 11-18-2014, 09:21 AM   #18
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I use VFSUX and VMLUX.
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