LI Sound Grunt

I have too much money in the credit union and am looking for fairly secure returns greater than 1%.

VWAHX or VWITX or similar in mind -any thoughts?

joe.giuliano

Duration is too long for me. Not worth the risk.

BACKTOTHESEA

Varying degrees of interest rate risk, hence Joe's comment.

FWIW, my approach is cash reserves are just that, cash (low yield money market). Making up for the "shortfall" in returns is a fairly aggressively invested portfolio with a secondary reserve for buying opportunities.

Im 4 years out for retirement and 7 years out from needing access to my investments.

LI32

Of the two (VWAHX or VWITX), VWITX is more conservative and thus less volatile.
Both are pretty good performers for what they are, but neither are risk free - if the market drops a lot, they will drop too.
Tax free investment growth may become very important next year.

joe.giuliano

I think the second one had a shorter duration.

ncmallard78

IMO tax free munis are very attractive right now. Ton of demand, no supply. Fed has said interest rates will remain low through 2022. No signs of inflation either. Taxes should go up, not down, so munis are a good option.

onokai

pay up for a Vanguard personal advisor .
I did this two years ago and she manages 1/2 my money -the fees are super low.
Its paid off well for me.

LI Sound Grunt

I do have one available for free . Thanks for the reminder.

Thanks to all. I don't know why I hadn't considered these in the past - It was all Vanguard Stock ETF's - mostly broad based and cash. I had discounted Corporate bonds and US Treasury for various reasons abut never thought about these.

joe.giuliano

In general most people say buying individual bonds is better than a MF or ETF.

LI Sound Grunt

Yes I have heard from several. Not sure why.It seems buying several spreads the risk.There must be funds that only buy AAA rated. I mean I can see individual ones would be better if you assume rising interest rates.? right? So is that the assumption? I suppose with this debt to pay off eventually rates will have to rise...?

joe.giuliano

I think rates will stay low for a while. While the debt technically will cause inflation the Government would rather pay 1% than 4%. In terms of individual it depends on how much. You buy typically in 25K increments so you can get 10 if you have 250K.
Some states also don;t tax if you buy from their state. I think you can get AA ot better GO bonds without taking on too much risk.

onokai

Your advisor is the go to on these questions .
I have been with Vanguard since 1986.
great outfit.

59cruisers

There are a lot of muni ETFs out there that are more flexible. You can trade like stocks. No extra fees, no load. If you are looking short term, I'd stick with ETFs All bond returns are in the crapper right now, but you can get about 4% on a high yield muni. Check out HYD.

bjm9818

You can get absolutely destroyed holding a bond fund. If the fund has a target duration, rates rise and they need to dump a bunch of bonds at some point to stay within the funds defined structure they will take huge losses.

Buy a bond and hold to maturity, yes you have default risk but besides that you will always get back your principal plus bond interest.

Personally right now I would only hold individual bonds or a very short term bond fund.

KismetLRC

I park a fair amount of my rainy day dollars in Vanguard Intermediate Term Tax Exempt Admiral Shares (VWIUX)

Fund average annual returns (fee-adjusted)
VWIUX
YTD 3.26% 3.09%
1 year 3.77% 3.66%
3 year 3.86% 3.69%
5 year 3.43% 3.22%

joe.giuliano

Yep. All the decent returns are from falling rates. Not paying interest.

Sprockets

I use this as well. Paired with a Wells Fargo Short Term Muni fund to reduce overall duration.

Re-Bait

BUT THATS NOT WHAT YOU ARE BUYING. Historic returns on bond funds mean ZIP. What is duration. What is the yield to maturity. What is the current yield. What the average muni bond fund investor does is look at the above numbers and thinks thats what they are yielding. What the above numbers are is yield plus return. Those are good bond funds I'm just saying to approach with full knowledge of what you are getting.

Here's a question all mutual bond investors need to ask. What happens if rates go up 1%, 1.5%, or 2%. If you put $500,000 into a bond fund and rates go up 1%...when do you get your 500K back? They can't answer that. Keep in mind we are at a multi century low in rates. If you buy now you need to hope rates stay the same or drop.

bjm9818

Making some very rough assumptions, but I bet you could see 30-45% losses in the fund if rates hit 3-4% higher.

king_me

For what its worth - I received a newsletter the other day mentioning these funds for cash reserves. I never looked into them -

iShares 0-5 Year Investment Grade Corp Bond ETF (SLQD) - TTM Yield 2.48%.
SPDR Portfolio Short Term Corp Bond ETF (SPSB) -TTM Yield 2.14%
Invesco Ultra Short Duration ETF (GSY) - TTM Yield 1.76%