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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.

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

This story appears in the October 2003 issue of Entrepreneur. Subscribe »