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Vanguard Short-Term Investment-Grade Inv Message Board

  • kayneari kayneari Apr 1, 2009 7:10 PM Flag

    Why I invested in this fund

    I choose to put money into Vanguard short term investment grade because.....

    I wanted a bond fund --- but I fear long term inflation so I want the term to be limited.

    I like the corporate spread - and I am concerned about U S Treasuries

    And of course - I trust Vanguard for stewartship and low fees.

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    • How can we believe that interest rates will stay low when the Congress is passing budget busting laws for things we can't afford and which will cause rampant inflation plus the fact that China is lecturing us our out-of control spending and is showing signs of refusing to buy our government notes. The way we are throwing away the financial futures of our children and grandchildren for generations to come is unbelievable.

    • I am new to this investment. I am quite surprised that there has been no mention of the reason that interest rates seem destined to increase soon. With our exaulted Savior intent on passing budget busting legislation at every turn, aand lying about no tax increases, with China lecturing us on reckless spending, etc.,etc. It appears to me this may be a short term purchase for me.

    • okay, my short term funds total return ytd (based on my performance data from the vanguard web site) is much better when compared to the high yield corp. fund....i started in both these these funds around late march/early april....did i get into high fund at a bad time??

    • Rates will go up someday, but for the next several years they will be flat, so a volatile 2% yield is not a good risk adjusted investment. If the yield is huge, the price is low, and that is when you buy this type of a bond. When the yield is tiny and the price is huge, this is a good time to dump it.

      The point I was making had to do with adding new money to that bond. Why would you add any new money to an overpriced low yielding risky bond?

    • Define doing better...

      High-yield is a higher risk fund. It is composed of lower quality bonds, and thus subject to higher volatility.

    • hey prof,
      why is my short term doing so much better than my high yield corp.?? on the yahoo site, stats clearly favor high yield ytd for overall gains, compared to the short term invest. grade...what gives??

    • I agree that TIPS aren't the BEST or even more reasonable place to be, but just might be the SAFEST, where you cannot lose principal, yet if inflation explodes (remember the 80s?) you'll get some protection.

      Then again VMMXX is safe, and although is paying 'mattress' rates now, will go up with inflation (well, assuming short-term rates follow), with virtually no principal risk [we won't talk about 'reserve'].

      True, treasuries are lousy now, short-term rates are non-existent and long-term is too risky.

      That's why I've put much of my cash position in this fund, moderate principal risk (not counting last Fall) with decent (although it's now under 4%) return.

    • Anyone out there familiar with the High Yield Corp.Bond fund from Vanguard? If you read Dan Wiener's "Vanguard Advisor", (and he has been more right than wrong in my 15 years with him), the High Yield Corp. is an Excellent fund to be in now...any comments??

    • TIPS are cooked - they underperform real inflation by definition.

      Here are some facts (and inferences) related to TIPS:
      1) TIPs funds (not individual bonds) typically maintain a dollar-weighted average maturity of 7 to 20 years. This implies high volatility and high sensitivity to interest rates
      2) Inflation excludes oil and food - the biggest drivers of inflation
      3) Government will keep interest rates at 0 for as long as possible, meaning that TIPS will pay next to nothing, and then it will refrain from raising rats for as long as possible

      All of the above leads me to believe that TIPS are a terrible place to be right now (unless they are an integral part of your portfolio, i.e. meaning that you already hold enough short/medium duration Treasuries).

      Comparing corporate bonds to treasuries is like comparing apples to oranges. Right now, it really does not matter whether one is riskier than the other (a moot point since they respond to different 'stimuli'), but whether BOTH are too risky. Short treasuries do not reward one for holding them. Long ones are too volatile.

    • Valid point. TIPs are based on a cooked government 'inflation' which does not include the real inflation drivers. I used to recommend TIPs, but not anymore. I think TIPs will underperform in the current climate, as they are usually longer term bonds which are very volatile. So to answer your question, I think it may make sense to split your cash between VFSTX and a CD (if you can find it). I think right now the better choice is to keep cash in the bank (or a net bank). But I'm afraid that 3 years later with interest rates still at 0 so we are screwed anyway.

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