As everyone knows interest rates (checking account, savings account, online savings account etc) are low. They have risen a bit, but are no where near the historical highs (or enough to overcome inflation). I am constantly in situations where I want to park my extra cash in liquid high yielding investments. One approach is to invest in quality dividend growth stocks. Stocks are risky (even quality ones) and not very liquid.
This post is not about savings account or CDs. It is about investing in other fixed investment strategies. As someone who has been investing with Vanguard for almost 6 years, I wanted to point out some excellent vanguard choices for fixed income investing.
First thing to keep in mind is that the interest earned from these investments are treated as ordinary income and hence are taxed at marginal tax rate. Unlike dividends which are taxed at a flat 15% rate. Secondly, these investments are subject to interest rate (hike) risks (that being said
They tend to go down in value when interest rates go up. Typically, the deprecation rate is a function of time. Some funds are federal tax exempt. Typically, these funds are useful for high income households. The yields mentioned are after accounting for expense ratio. In choosing funds I have tried to account for interest rate sensitivity, the funds mentioned below have short to limited term maturity (1-3 years). Most of these funds don't have an equivalent ETF. The only exception being short-term bond ETF.
Vanguard Federal Money Market Fund (VMFXX)
This fund typically invest in short-term government securities. There primary goal is to preserve the principal and at the same time generate some income. Hence this is one of the most safest and conservative fund. Distributions for this fund are scheduled Monthly.
| Expense ratio | 0.11% |
| Minimum investment | $3000.00 |
| Yield | 0.98% |
| Average maturity | 52.0 days |
Vanguard Prime Money Market Fund (VMMXX)
This fund typically invest in short-term high quality securities (not necessarily government). Primary goal is to preserve the principal and at the same time generate some income. Hence this is one of the most safest and conservative fund. Distributions for this fund are scheduled Monthly.
| Expense ratio | 0.16% |
| Minimum investment | $3000.00 |
| Yield | 1.11% |
| Average maturity | 42.0 days |
Vanguard Municipal Money Market Fund (VMSXX)
VMSXX seeks to provide federally tax-exempt income and preserve shareholders’ principal investment by maintaining a share price of $1.Distributions for this fund are scheduled Monthly.
| Expense ratio | 0.15% |
| Minimum investment | $3000.00 |
| Yield | 0.82% |
| Average maturity | 38.0 days |
Vanguard Short-Term Bond Index Fund (VBISX)
This index fund offers a low-cost, diversified approach to bond investing, providing broad exposure to U.S. investment-grade bonds with maturities from one to five years. Reflecting this goal, the fund invests about 30% of assets in corporate bonds and 70% in U.S. government bonds within that maturity range. Distributions for this fund are scheduled Monthly.
| Expense ratio | 0.15% |
| Minimum investment | $3000.00 |
| Yield | 1.60% |
| Average maturity | 2.9 years |
Vanguard Short-Term Bond ETF (BSV)
This ETF offers a low-cost, diversified approach to bond investing, providing broad exposure to U.S. investment-grade bonds with maturities from one to five years. Reflecting this goal, the ETF invests about 30% of assets in corporate bonds and 70% in U.S. government bonds within that maturity range. Distributions for this fund are scheduled Monthly.
| Expense ratio | 0.15% |
| Minimum investment | $79.72 |
| Yield | 1.68% |
| Average maturity | 2.9 years |
Vanguard Short-Term Treasury Fund (VFISX)
This fund invests in debt issued directly by the government in the form of Treasury bills.
| Expense ratio | 0.20% |
| Minimum investment | $3000.00 |
| Yield | 1.17% |
| Average maturity | 2.3 years |
Vanguard Short-Term Investment-Grade Fund (VFSTX)
This fund is designed to give investors exposure to high- and medium-quality, investment-grade bonds with short-term maturities.
| Expense ratio | 0.20% |
| Minimum investment | $3000.00 |
| Yield | 1.95% |
| Average maturity | 3.1 years |
Vanguard Ultra-Short-Term Bond Fund Investor Shares (VUBFX)
The fund is designed to give investors low-cost exposure to money market instruments and short-term high-quality bonds, including asset-backed, government, and investment-grade corporate securities.
| Expense ratio | 0.20% |
| Minimum investment | $3000.00 |
| Yield | 1.47% |
| Average maturity | 1.0 years |
Vanguard Limited-Term Tax-Exempt Fund (VMLTX)
This low-cost municipal bond fund seeks to provide income exempt from federal taxes and typically appeals to investors in higher tax brackets. The fund holds high-quality short-term municipal bonds with an average duration of approximately 2 years.
| Expense ratio | 0.19% |
| Minimum investment | $3000.00 |
| Yield | 1.14% |
| Average maturity | 2.8 years |
Vanguard Short-Term Tax-Exempt Fund (VWSTX)
This fund seeks to provide income exempt from federal taxes by investing in high-quality, short-term municipal securities with an average duration of 1 to 2 years.
| Expense ratio | 0.19% |
| Minimum investment | $3000.00 |
| Yield | 0.89% |
| Average maturity | 0.8 years |
Source: Vanguard
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