how should i invest for short term purpose under vanguard? TIA

hi i have an account with vanguard for my sep-ira. they are all stock
funds(index 500, reit, windsor II) for long term investment. now i'm
saving up for a down payment for a house and maybe a new car in a year
to four years. i have about 20k at this point. how should i invest
this amount that will yield the highest return with moderate risk in
the next 1-4 years? i'm leaning more towards bond fund because of the
higher return than monemarket and less rist than stock funds, maybe
tax-exempted funds because of my income bracket(25% to 28%). i like to
keep all of my funds under vanguard for easier management.....what
would be a good short term portfolio? TIA

david

Re: how should i invest for short term purpose under vanguard? TIA

Have you compared the recent returns of MM funds to the bond funds?



"david" <> wrote in message
news:
> hi i have an account with vanguard for my sep-ira. they are all stock
> funds(index 500, reit, windsor II) for long term investment. now i'm
> saving up for a down payment for a house and maybe a new car in a year
> to four years. i have about 20k at this point. how should i invest
> this amount that will yield the highest return with moderate risk in
> the next 1-4 years? i'm leaning more towards bond fund because of the
> higher return than monemarket and less rist than stock funds, maybe
> tax-exempted funds because of my income bracket(25% to 28%). i like to
> keep all of my funds under vanguard for easier management.....what
> would be a good short term portfolio? TIA
>
> david

Re: how should i invest for short term purpose under vanguard? TIA

Some questions:

You say you want "moderate risk." Can you quantify this somehow? E.g. would
you be happy if this $20k shrunk to $16k after five years, on the bet that
it might also increase to $24k in the same period? Or do you really want to
make sure you get all your principal back, and then some?

Do you live in one of the states for which Vanguard has a tax-exempt money
market fund?

Most folks saving for a house or car or some other purchase just a few years
away have a goal of simply staying out of high risk areas for those few
years. This means no stocks nor stock mutual funds nor junk bonds.

I would not sweat this too much, or else you'll just be splitting hairs over
a very small (and unknowable in advance) difference in return. Consider a
very simple mix of, say:
-- a good money market fund, say 30%
-- a short-term high grade bond fund, say 30%
-- either 6-month or 3-month CDs (purchased via bankrate.com, say), say 40%,
assuming you can bear to put your money outside of Vanguard. If not, see the
first two above.

For the funds, pick whichever strikes your fancy from Vanguard's listing at
the site below. Notice the yields after taking taxes into account are
similar.





"david" <> wrote
> hi i have an account with vanguard for my sep-ira. they are all stock
> funds(index 500, reit, windsor II) for long term investment. now i'm
> saving up for a down payment for a house and maybe a new car in a year
> to four years. i have about 20k at this point. how should i invest
> this amount that will yield the highest return with moderate risk in
> the next 1-4 years? i'm leaning more towards bond fund because of the
> higher return than monemarket and less rist than stock funds, maybe
> tax-exempted funds because of my income bracket(25% to 28%). i like to
> keep all of my funds under vanguard for easier management.....what
> would be a good short term portfolio? TIA
>
> david

Re: how should i invest for short term purpose under vanguard? TIA

On Thu, 25 Aug 2005 21:57:38 GMT, david <> wrote:
> hi i have an account with vanguard for my sep-ira. they are all stock
> funds(index 500, reit, windsor II) for long term investment. now i'm
> saving up for a down payment for a house and maybe a new car in a year
> to four years. i have about 20k at this point. how should i invest
> this amount that will yield the highest return with moderate risk in
> the next 1-4 years? i'm leaning more towards bond fund because of the
> higher return than monemarket and less rist than stock funds, maybe
> tax-exempted funds because of my income bracket(25% to 28%). i like to
> keep all of my funds under vanguard for easier management.....what
> would be a good short term portfolio? TIA

Although bonds themselves can be a reasonably secure investment, I have
never had any luck with bond funds.

Some bond funds have shown decent returns in past years, but the low bond
rates at present means that those rates will be decreasing as those bonds
expire and are replaced with lower yield bonds. And if other interest
rates increase or people pull out of the bond funds because other
investments are doing well, the fund has to sell bonds at a loss, and the
bond fund return can decrease to less than money market rates, or go
negative (been there).

So the best bet to not lose money short term is a high interest savings
account (I think some are paying 3.5% now) or CD.

Re: how should i invest for short term purpose under vanguard? TIA

"David Efflandt" <> wrote in message
news:
> On Thu, 25 Aug 2005 21:57:38 GMT, david <> wrote:
> > hi i have an account with vanguard for my sep-ira. they are all stock
> > funds(index 500, reit, windsor II) for long term investment. now i'm
> > saving up for a down payment for a house and maybe a new car in a year
> > to four years. i have about 20k at this point. how should i invest
> > this amount that will yield the highest return with moderate risk in
> > the next 1-4 years? i'm leaning more towards bond fund because of the
> > higher return than monemarket and less rist than stock funds, maybe
> > tax-exempted funds because of my income bracket(25% to 28%). i like to
> > keep all of my funds under vanguard for easier management.....what
> > would be a good short term portfolio? TIA
>
> Although bonds themselves can be a reasonably secure investment, I have
> never had any luck with bond funds.
>
> Some bond funds have shown decent returns in past years, but the low bond
> rates at present means that those rates will be decreasing as those bonds
> expire and are replaced with lower yield bonds.

No. Bonds are constantly on the market. The information you say will be
factored in in the future has been factored in already.

As interest rates rise, the yield on an investment grade bond fund will
rise, but the NAV will decline. The longer the average duration (or average
maturity, if you prefer) of the bond fund, the bigger the decline in the
NAV. Short-term bond funds are less vulnerable to interest rate rises than
long-term ones.

> And if other interest
> rates increase or people pull out of the bond funds because other
> investments are doing well, the fund has to sell bonds at a loss, and the
> bond fund return can decrease to less than money market rates, or go
> negative (been there).

What was the duration (or approximate average maturity) on the bond fund you
held? Plus, this was an investment grade bond fund, wasn't it?

> So the best bet to not lose money short term is a high interest savings
> account (I think some are paying 3.5% now) or CD.

Re: how should i invest for short term purpose under vanguard? TIA

Agree.


"David Efflandt" <> wrote in message
news:
> On Thu, 25 Aug 2005 21:57:38 GMT, david <> wrote:
>> hi i have an account with vanguard for my sep-ira. they are all stock
>> funds(index 500, reit, windsor II) for long term investment. now i'm
>> saving up for a down payment for a house and maybe a new car in a year
>> to four years. i have about 20k at this point. how should i invest
>> this amount that will yield the highest return with moderate risk in
>> the next 1-4 years? i'm leaning more towards bond fund because of the
>> higher return than monemarket and less rist than stock funds, maybe
>> tax-exempted funds because of my income bracket(25% to 28%). i like to
>> keep all of my funds under vanguard for easier management.....what
>> would be a good short term portfolio? TIA
>
> Although bonds themselves can be a reasonably secure investment, I have
> never had any luck with bond funds.
>
> Some bond funds have shown decent returns in past years, but the low bond
> rates at present means that those rates will be decreasing as those bonds
> expire and are replaced with lower yield bonds. And if other interest
> rates increase or people pull out of the bond funds because other
> investments are doing well, the fund has to sell bonds at a loss, and the
> bond fund return can decrease to less than money market rates, or go
> negative (been there).
>
> So the best bet to not lose money short term is a high interest savings
> account (I think some are paying 3.5% now) or CD.

Re: how should i invest for short term purpose under vanguard? TIA

"Elle" <> wrote

> Short-term bond funds are less vulnerable to interest rate rises than
> long-term ones.

This may be true but which yields have been rising?
Short term bond funds are not a good bet.

Re: how should i invest for short term purpose under vanguard? TIA

>Some questions:
>
>You say you want "moderate risk." Can you quantify this somehow? E.g. would
>you be happy if this $20k shrunk to $16k after five years, on the bet that
>it might also increase to $24k in the same period? Or do you really want to
>make sure you get all your principal back, and then some?

Ok, i guess i meant low risk(shrunk to $18k from $20k is what i can
tolerate).

>
>Do you live in one of the states for which Vanguard has a tax-exempt money
>market fund?

I'm not too sure, i live in texas. i looked up the funds it seems to
me that there's no tax-exempted funds in texas
>
>Most folks saving for a house or car or some other purchase just a few years
>away have a goal of simply staying out of high risk areas for those few
>years. This means no stocks nor stock mutual funds nor junk bonds.
>
>I would not sweat this too much, or else you'll just be splitting hairs over
>a very small (and unknowable in advance) difference in return. Consider a
>very simple mix of, say:
>-- a good money market fund, say 30%
>-- a short-term high grade bond fund, say 30%
>-- either 6-month or 3-month CDs (purchased via bankrate.com, say), say 40%,
>assuming you can bear to put your money outside of Vanguard. If not, see the
>first two above.
if i opt for the only the first two, what are some of the good money
market funds and bond funds under vanguard?
>
>For the funds, pick whichever strikes your fancy from Vanguard's listing at
>the site below. Notice the yields after taking taxes into account are
>similar.
>
>
>
>
>
>"david" <> wrote
>> hi i have an account with vanguard for my sep-ira. they are all stock
>> funds(index 500, reit, windsor II) for long term investment. now i'm
>> saving up for a down payment for a house and maybe a new car in a year
>> to four years. i have about 20k at this point. how should i invest
>> this amount that will yield the highest return with moderate risk in
>> the next 1-4 years? i'm leaning more towards bond fund because of the
>> higher return than monemarket and less rist than stock funds, maybe
>> tax-exempted funds because of my income bracket(25% to 28%). i like to
>> keep all of my funds under vanguard for easier management.....what
>> would be a good short term portfolio? TIA
>>
>> david
>

Re: how should i invest for short term purpose under vanguard? TIA

"david" <> wrote
> >Some questions:
> >
> >You say you want "moderate risk." Can you quantify this somehow? E.g.
would
> >you be happy if this $20k shrunk to $16k after five years, on the bet
that
> >it might also increase to $24k in the same period? Or do you really want
to
> >make sure you get all your principal back, and then some?
>
> Ok, i guess i meant low risk(shrunk to $18k from $20k is what i can
> tolerate).

> >Do you live in one of the states for which Vanguard has a tax-exempt
money
> >market fund?
>
> I'm not too sure, i live in texas. i looked up the funds it seems to
> me that there's no tax-exempted funds in texas

From the link I sent you, among money market tax exempt funds, this leaves
VMSXX, whose income is exempt from federal taxes. It is currently yielding
about 2.46%, according to Vanguard's site.

> >Most folks saving for a house or car or some other purchase just a few
years
> >away have a goal of simply staying out of high risk areas for those few
> >years. This means no stocks nor stock mutual funds nor junk bonds.
> >
> >I would not sweat this too much, or else you'll just be splitting hairs
over
> >a very small (and unknowable in advance) difference in return. Consider a
> >very simple mix of, say:
> >-- a good money market fund, say 30%
> >-- a short-term high grade bond fund, say 30%
> >-- either 6-month or 3-month CDs (purchased via bankrate.com, say), say
40%,
> >assuming you can bear to put your money outside of Vanguard. If not, see
the
> >first two above.
> if i opt for the only the first two, what are some of the good money
> market funds and bond funds under vanguard?

"Good" is pretty arbitrary here. The returns are going to be so close (and
are equally unpredictable with any kind of precision).

Of the money market funds, Vanguard says VMMXX typically offers the highest
yield of all its money market funds. So maybe just go with this. Note that
taking away 25% of its income (per your federal income tax rate) leaves you
with a yield similar to the tax-exempt fund above. This is to be expected:
The market tends to even out the yield of equally risky vehicles.

For a short-term bond fund:
I personally would opt for the VBISX fund, because it adds a tad more risk
for a higher return while the other two categories above are extremely low
risk. It does this by having a slightly longer duration (plus probably
average maturity) and so will tend to have a slightly higher yield, with
increased risk if interest rates rise a lot.

If you had more money and so could easily meet the fund minimums, I might
split my investment among all four short-term bond funds listed.

If I may, you seem a little hesitant to get familiar with the Vanguard site.
Give it a shot... you don't have to learn about fund criteria all in five
minutes. Just read about one fund a day. When you come to a definition you
don't understand (like maybe "duration"), google, look it up in a
dictionary, or ask someone for help. Taking some initiative to learn by
yourself about investing is one of the first steps towards accumulating
wealth.

I just noticed that Vanguard does offer CDs, by the way. It looks like one
needs an account to log in and explore its CD offerings. But I expect the
offerings will be competitive. You really should consider buying a few (e.g.
maybe around $5k worth?) six-month or three-month CDs with your $20k,
assuming the yields look attractive compared to the yields on the funds
above. Consider even a couple of one-year CDs. I expect their yield will
beat the money market yield.

Keep checking back. Someone will likely fine tune my remarks above, and this
may be helpful.

misc.invest.financial-plan is also a good group to ask questions like yours
at. It is moderated, so be a little patient (like one day, tops) about posts
showing up.

Re: how should i invest for short term purpose under vanguard? TIA

"Elle" <> wrote

>> if i opt for the only the first two, what are some of the good money
>> market funds and bond funds under vanguard?
>
> "Good" is pretty arbitrary here. The returns are going to be so close (and
> are equally unpredictable with any kind of precision).

Unpredictable? You mean Greenspan is done?
I think they are very predictable, yields will be going up.

Last time I looked, the only Vanguard bond funds that were beating the MM
fund (Prime) were the long term funds. Could be risky for a short term
investor.

I would not buy a short term bond fund here, the risk is very predictable
for the slightly above average investor and up. As I said before, David
should go with the MM fund. If you want a good bond fund under current
circumstances you have to think outside of Vanguard and you must be willing
to take on more risk.

Re: how should i invest for short term purpose under vanguard? TIA

Thanks guys,
while i was reading up bond funds and mm funds on vanguard site. i
came across balanced funds and the star fund seemed to fluctuate very
little. will it be a good short term investment as well? TIA

david


On Fri, 26 Aug 2005 13:34:33 -0400, "Ed" <> wrote:

>
>"Elle" <> wrote
>
>>> if i opt for the only the first two, what are some of the good money
>>> market funds and bond funds under vanguard?
>>
>> "Good" is pretty arbitrary here. The returns are going to be so close (and
>> are equally unpredictable with any kind of precision).
>
>Unpredictable? You mean Greenspan is done?
>I think they are very predictable, yields will be going up.
>
>Last time I looked, the only Vanguard bond funds that were beating the MM
>fund (Prime) were the long term funds. Could be risky for a short term
>investor.
>
>I would not buy a short term bond fund here, the risk is very predictable
>for the slightly above average investor and up. As I said before, David
>should go with the MM fund. If you want a good bond fund under current
>circumstances you have to think outside of Vanguard and you must be willing
>to take on more risk.
>
>
>

Re: how should i invest for short term purpose under vanguard? TIA

"david" <> wrote
> Thanks guys,
> while i was reading up bond funds and mm funds on vanguard site. i
> came across balanced funds and the star fund seemed to fluctuate very
> little. will it be a good short term investment as well? TIA
>
> david
>
>
> On Fri, 26 Aug 2005 13:34:33 -0400, "Ed" <> wrote:
>
> >
> >"Elle" <> wrote
> >
> >>> if i opt for the only the first two, what are some of the good money
> >>> market funds and bond funds under vanguard?
> >>
> >> "Good" is pretty arbitrary here. The returns are going to be so close
(and
> >> are equally unpredictable with any kind of precision).
> >
> >Unpredictable? You mean Greenspan is done?

Greenspan faces mandatory retirement from the Fed Reserve Chair's job at the
end of January.

> >I think they are very predictable, yields will be going up.
> >
> >Last time I looked, the only Vanguard bond funds that were beating the MM
> >fund (Prime) were the long term funds.

Look again. The yields of all of Vanguard's taxable short-term bond funds
are beating the best Vanguard money market fund.

> > Could be risky for a short term
> >investor.
> >
> >I would not buy a short term bond fund here, the risk is very predictable
> >for the slightly above average investor and up. As I said before, David
> >should go with the MM fund. If you want a good bond fund under current
> >circumstances you have to think outside of Vanguard and you must be
willing
> >to take on more risk.

This is oxymoronic. Any non-Vanguard short-term investment grade bond fund
is going to have the same problems as Vanguard's.

Re: how should i invest for short term purpose under vanguard? TIA

"Elle" <> wrote

> Look again. The yields of all of Vanguard's taxable short-term bond funds
> are beating the best Vanguard money market fund.

How about total return, that's what matters. What good is yield if the total
return is not cutting it?

>> >I would not buy a short term bond fund here, the risk is very
>> >predictable
>> >for the slightly above average investor and up. As I said before, David
>> >should go with the MM fund. If you want a good bond fund under current
>> >circumstances you have to think outside of Vanguard and you must be
> willing
>> >to take on more risk.
>
> This is oxymoronic. Any non-Vanguard short-term investment grade bond fund
> is going to have the same problems as Vanguard's.

You must have missed the "take on more risk" part.

Re: how should i invest for short term purpose under vanguard? TIA

"Elle" <> wrote

> Look again. The yields of all of Vanguard's taxable short-term bond funds
> are beating the best Vanguard money market fund.

Prime Money Mkt Fund +1.72% year to date
Short Term Bond Index, +0.71%
Short Term Federal, +0.87%
Short Term Invest Grade, +1.25%
Short Term Treasury, +0.95%

You take yield, I'll take total return.