I am looking at finding a short term bond fund to store my house down payment money in.
I really don't want complicate this with an online savings account which gives an easy 0.9% with no downside. I want to do this in my brokerage account at Vanguard.
So, I plan on using a short term bond fund at vanguard.
The choices are
short term index: vbisx
short term tax exempt: vbirx
limited term tax exempt: vfstx
short term corporate: vwstx
I am in the 25% bracket
Anyone familiar with what the downsides are of short-term municipals like the tax exempt fund. Those look more appealing than the short term index, but the downside appears bigger to me in times when there is "blood on the streets." At least that is looking at the charts and thinking about what is in these funds. I imagine the corporate index tends to drop in bad situations as well.
The function of this money is a place to build up cash for some house purchase down the road if/when I decide to buy. But, if the world goes to shit I would also like it to be my buy low money in stocks, real estate, or whatever. I understand that past data indicate that a cash position tends to be a drag over time. But, having this money is a kind of psychological insurance. If the bulk of my portfolio goes down 50%, but I can drop this money into a great deal I believe it will go a long way in my handling of a huge drop in asset prices.
In the end it this is more of a learning exercise than anything to see what everyone else thinks. We are talking a yield difference of <0.5% and downside risks on the order of 5% (probably a lot less).