No Guts, Some Glory
Thinking short term and safety first? Here's a fund that's got both.
If you love safety and can't stomach risk, Treasury
securities are hard to top. Because Treasury securities are backed
by the full faith and credit of the U.S. government, they receive
the highest rating-triple A-and are considered the safest
fixed-income investments around.
In the short-term Treasury arena, The Vanguard Group's
Short-Term Treasury Fund (VFISX) has been a top performer over the
past few years. This is in part because interest rates have
dropped, which makes bond prices increase, and is also due to
Vanguard's minimal management expenses: The expense ratio on
this fund is an amazingly low 0.29 percent, according to
Morningstar.
But interest rates can be as fickle as equity prices. And while
an investment in a sound short-term Treasury fund may easily have a
place in a diversified portfolio, expecting the fund's total
return to always be dazzling is like thinking stock prices only go
up.
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David Glocke, portfolio manager of Vanguard's Short-Term
Treasury Fund, says when interest rates eventually start to pop,
investors will feel it. "The performance of short-term
fixed-income securities is greatly impacted by changes in the
economy and Fed policy," he says.
Does that make short-term Treasury funds worth dumping when
interest rates start to climb? Glocke doesn't think so-provided
the reason you invested in the fund in the first place is still
true today. If not, and you're still a type-A safety-freak
investor, Vanguard also offers both intermediate and long-term
Treasury fund options.
Dian Vujovich is an author, syndicated columnist, and
publisher of the fund investing site www.fundfreebies.com.