Join Early Retirement Today
Thread Tools Search this Thread Display Modes
Bond fund question
Old 11-20-2008, 08:56 AM   #1
Recycles dryer sheets
Join Date: Jul 2008
Location: Weatherford, Texas
Posts: 305
Bond fund question

Vanguard has a GNMA fund and a Short Term Bond Fund. Risk for GNMA is shown on scale as "2". Risk for Short Term Bond Fund is shown as "1".
Short Term Bond Fund holds corporate debt some of which is "b" rated. GNMA is all AAA back by the government. Short Term Bond Fund is yielding much higher than GNMA. Is the higher risk rating for GNMA simply a result of longer durations? Which fund offers lowest risk to my principal?
Life is good. Then you die.
lawman is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 11-21-2008, 11:41 PM   #2
Dryer sheet aficionado
Join Date: Nov 2008
Posts: 37
This seems to be a difference in rating criteria. S&P or Moody's rate the GNMA fund AAA, which means extremely low likelihood of default. The "B" rated corporate debt means higher likelihood of default. S&P and Moody's assign their ratings based on their evaluation of the issuers ability to pay.

You didn't mention who assigned the "1" or "2" ratings (Vanguard?). My guess is this is likely based on different criteria than what S&P and Moody's would use, perhaps past performance of the fund, volatility, and other criteria similar to what Morningstar would use. It's worth reading the fine print on what the ratings are based on, but this seems to be a difference between:
1. rating the funds and their performance and volatility, versus
2. rating the issuers of the bonds and their ability to repay

Again, I would dive into the details before investing, but there is probably a tradeoff like: the GNMA has less likelihood of default loss, but the Short-term bond fund has less likelihood of volatile downward movements.
Dreamweaver is offline   Reply With Quote
Old 11-22-2008, 01:19 AM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
youbet's Avatar
Join Date: Mar 2005
Location: Chicago
Posts: 11,825
The Vanguard GNMA fund, in DW and my IRA's, has been a nice performer this past year. I like it a lot. Of course, anything in my portfolio that isn't laying on its back with its legs sticking up looks good to me right now!
"I wasn't born blue blood. I was born blue-collar." John Wort Hannam
youbet is offline   Reply With Quote

Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off

Similar Threads
Thread Thread Starter Forum Replies Last Post
Prime Money Market Fund vs. Total Bond Fund two4theroad FIRE and Money 2 04-10-2008 12:46 PM
What Bond Fund? yakers Active Investing, Market Strategies & Alternative Assets 15 12-13-2007 03:54 PM
Bond Fund and Money Market Fund Tax Treatment Question terminator FIRE and Money 4 03-01-2007 07:56 AM
TIPS: Buy Bond or Bond FUND? Pros & Cons please! Jane_Doe FIRE and Money 67 11-20-2006 09:29 PM
Bond Fund or CD smooch FIRE and Money 17 06-16-2006 02:57 PM

» Quick Links

All times are GMT -6. The time now is 12:33 PM.
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2021, vBulletin Solutions, Inc.