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Vanguard Short-Term Bond Index Fund Investor Shares vs. CD
Old 01-27-2012, 12:22 PM   #1
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Vanguard Short-Term Bond Index Fund Investor Shares vs. CD

Vanguard Short-Term Bond Index Fund Investor Shares vs. a 2 year CD for 2%

Which would you buy and why looking out two years?
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Old 01-27-2012, 12:58 PM   #2
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ST bond fund... I like to be liquid...
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Old 01-27-2012, 12:58 PM   #3
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The fund has had a 1 year return of 2.96% and a 3 year return of 3.72%. I would buy the fund. I own the Admiral class + CDs with the CDs as part of my emergency funds.
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Old 01-27-2012, 07:52 PM   #4
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The CD will return your money with interest in 2 years. The bond fund will probably yield more, but there is no guarantee that you will get your capital back in 2 years. You might lose money if the share price goes down. Which bothers you more? Losing your capital if the share price declines, or limiting your gains to 2% a year.?
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Old 01-27-2012, 08:33 PM   #5
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ST bond fund... I like to be liquid...
+1

I cashed my last CD in Dec. The rates are just too low these days so my cash is now all in I-Bonds and the VG ST bond fund.
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Old 01-27-2012, 09:25 PM   #6
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I use Vanguard Short-Term Bond Index for all my short-term (< 1yr) funds.
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Old 01-27-2012, 09:46 PM   #7
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Nobody is wondering where he found a 2 year CD for 2%??
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Old 01-27-2012, 10:19 PM   #8
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Old 01-27-2012, 10:22 PM   #9
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Nobody is wondering where he found a 2 year CD for 2%??
Good point.

Edit: Can't get that at Penfed.
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Old 01-27-2012, 10:24 PM   #10
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Bernanke said he would not raise rates for two year which do you think will have a high return?
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Old 01-28-2012, 09:58 AM   #11
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I do own a big chunk of VFSUX and no CD's for all the reasons above (liquidity, better returns expected vs any CD I have access to, Fed rates essentially nil into 2014). But we all have to do what's best for ourselves...
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Old 01-28-2012, 11:05 AM   #12
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I do own a big chunk of VFSUX and no CD's for all the reasons above (liquidity, better returns expected vs any CD I have access to, Fed rates essentially nil into 2014). But we all have to do what's best for ourselves...
I wonder if it pays to employ this strategy if you already have a good deal invested in VBTLX? Is there a diversification in using alongside VFSUX? Is it reasonable to assume that since no rate increases until 2014 that VFSUX would be a better deal than say a brokered CD at 3% for 10 years? Or should one just go with more VBTLX and stay the course so to speak.
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Old 01-28-2012, 11:37 AM   #13
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I wonder if it pays to employ this strategy if you already have a good deal invested in VBTLX? Is there a diversification in using alongside VFSUX? Is it reasonable to assume that since no rate increases until 2014 that VFSUX would be a better deal than say a brokered CD at 3% for 10 years? Or should one just go with more VBTLX and stay the course so to speak.
Fair enough, and I could argue both sides. I am 50/50 VFSUX & VBTLX and ordinarily I would be comfortable with all VBTLX - and was until the Fed started "committing" to holding down rates for years. I wanted to shorten duration to reduce the inevitable hit bond fund NAVs will take once the Fed increases rates - that 99% of us won't be able to act fast enough to avoid. But I realize I am giving up some yield with VFSUX in the meantime and it may all come out in the wash, hopefully no better no worse in the end?

As for a 10-year CD at 3%, I'd rather have the liquidity. I expect yields close to that near term (and much better than short term cash equivalents, MMF, etc.), and I expect to do better with bonds in a few years, certainly less than 10 years out though my crystal ball is almost useless.

If there is a clear right answer re: cash & bonds today, I haven't found it. Reasoned critiques are always welcome.
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Old 01-28-2012, 03:19 PM   #14
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It really does pose a dilemma for us all. I am still in the process of investing the rest of a lump sum and have basically a four fund philosophy plus CD's at the moment. I am considering what you are proposing Midpack as another option in the short term. I sure wish my crystal ball would work as well. Sometimes I wonder if it is all worth the effort or should I just go for the sure thing and put it all in 10 year Cd's for 3 percent and be done with it. I guess time will tell as they say. I too am always open for new suggestions and this one (VFSUX) is interesting to me indeed.
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Old 01-28-2012, 03:29 PM   #15
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Sometimes I wonder if it is all worth the effort or should I just go for the sure thing and put it all in 10 year Cd's for 3 percent and be done with it .
10 year CD's at these rates bother me. Ten years ago I would have never thought we would have 1 year T-bill rates at under 1%, much less near zero. So, I am very careful going out more than 3 years. I have several 5 year CD's at about 2.2% only because the penalty for breaking them is very small.
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Old 01-28-2012, 05:02 PM   #16
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If I were a fund manager I don't think I'd like it if my fund's ticker ended in "SUX"...
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Old 01-28-2012, 05:13 PM   #17
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If deflation ensues over the 5 or 10 years, those 10 year CD will look like a genius move.
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Old 01-28-2012, 05:15 PM   #18
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I have about 10 years of income supplement in VFSUX Vanguards ST investment grade. To my little pea brain it is as good as cash. Never had a CD in my entire life.
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Old 01-28-2012, 05:26 PM   #19
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It's interesting that the TOTAL Bond Index (VBTLX) is invested 69.2% in government securities. Somehow I thought it would be a more uniform distribution across the bond market.
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Old 01-28-2012, 05:26 PM   #20
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Okay, So here's a question. I have a large slug of money set aside to pay taxes on a windfall on April 15th. Right now it is in the bank at 0.95%. Would it be appropriate to put it in VFSUX for 2-1/2 months? Is that too short term?
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