The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: ultros1234 on March 22, 2013, 06:18:05 PM
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Hi folks --
I'm relatively new to investing and am trying to appropriately set up my asset allocation. I want to put a bit of money in bonds, and per William Bernstein's recommendation, I was looking for a nice short-term corporate bond fund for a chunk of my Vanguard IRA. (I think Bernstein's idea is that I'm better off with exposure to credit risk from the corporate sector than exposure to interest rate risk from longer-maturity bonds.)
So it turns out that Vanguard has a short-term corporate bond fund (VSCSX), but it isn't open to a normal investor. They do have an ETF that I could invest in, VCSH -- but I'm new to this game and am unclear whether investing in an ETF would subject me to fees down the road. Basically, I have to decide whether I invest in this ETF, or whether I settle for a broader bond index fund like VBISX or VBIIX (short or intermediate-term bond indices).
Any help would be much appreciated!
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So it turns out that Vanguard has a short-term corporate bond fund (VSCSX), but it isn't open to a normal investor.
I'm a little confused by your question. The Vanguard Short-Term Investment-Grade Fund (VFSTX) sounds like the fund you want. It is similar to the VCSH ETF fund.
Does that help?
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I had been looking for a fund that was exclusively corporate, while VFSTX has some government bonds. But upon closer inspection, it looks like the government component is only around 13%, so maybe that's close enough. Does VFSTX seem like a reasonable fund to be the core bond investment in my portfolio? I'm looking for an 80-20 stock-bond split, intending to hold over a long time horizon.
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It should be fine. Think of the government bonds like a hedge.
The most important decision is how much stock to have vs. how much bonds. Beyond that, the difference it will make to your long term return with exactly how much short, medium, long, government vs. corporate, TIPS, GNMA, etc. (as long as you're not super-heavily weighting the riskier ones) isn't going to make a huge difference. I wouldn't sweat it. It's just like picking an S&P 500 index versus a total market index for stock; there is a difference over the long term, but it's not like you'll end up poor because you chose wrong.