Author Topic: Bond fund vs high yield savings  (Read 2077 times)

dave__

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Bond fund vs high yield savings
« on: January 18, 2016, 03:40:47 PM »
VBTLX has yielded 2.48% over the past 12 months vs. the 1.05% you can get through online savings. I'm looking to park a down payment for a house for 2-3 years somewhere and considered placing it in VBTLX instead of the "high yield" savings offered online. This is aside from our emergency fund which will be in the 1% online account for liquidity. Interest rates are at rock bottom so VBTLX doesn't seem like it could go much lower (much less halve). Is this a wise plan or am I overlooking something? Alternatively, is there a better bond fund to place the money?

Thanks!

tj

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Re: Bond fund vs high yield savings
« Reply #1 on: January 18, 2016, 04:02:59 PM »
VBTLX has yielded 2.48% over the past 12 months vs. the 1.05% you can get through online savings. I'm looking to park a down payment for a house for 2-3 years somewhere and considered placing it in VBTLX instead of the "high yield" savings offered online. This is aside from our emergency fund which will be in the 1% online account for liquidity. Interest rates are at rock bottom so VBTLX doesn't seem like it could go much lower (much less halve). Is this a wise plan or am I overlooking something? Alternatively, is there a better bond fund to place the money?

Thanks!
If interest rates went down, the value of your VBTLX holdings would most likely go up, not down. If you need the capital in 2-3 years, it should be in a savings account or a short term bond fund....

Jim2001

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Re: Bond fund vs high yield savings
« Reply #2 on: January 18, 2016, 04:20:41 PM »
+1 for the savings account

What TJ is saying is that when rate rise, the price of bonds fall.  If you held bonds directly, the payout would stay the same, but the value of the account would drop.  In an actively managed fund, how much the manager buys and sells individual holdings and their associated rates will affect both the net asset value (NAV or the price per unit) and the payout. 

It is important to remember that bonds can and do typically go down in value in a rising market.  Also, if the fund has any individual positions close during your holding period, you will have capital gains to deal with.  This is not just when you sell, but on sales within the fund (I'm assuming this money is not in a qualified retirement account).

If this is money intended to be used in the next 24 months and if you can't afford to have it drop in value, leave it in a savings account.  The rate is low on a savings account because it is guaranteed not to lose any principal.

moustache79

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Re: Bond fund vs high yield savings
« Reply #3 on: January 19, 2016, 06:39:44 AM »
I like DBLSX for a bond fund (doubleline low duration).  Yield about 2%+.   Fees a bit higher but a duration of only 1 gives you more prtiection if rates rise

An alternative to savings accounts is to mix some CD's where you can get yields approaching 2-2.5%.  Check out depositaccounts.com for best rates etc.  many 5year cd's are able to be broken early with mild penalties.  i have several ranging from 15mo -5 years at rates 1.5 - 2.4%