> By way of example, the Vanguard short-term investment grade
> bond fund is currently yielding 4.87%, is rated 5 stars by
> MStar, and hasn't had a negative year in at least 10 years,
> has only had two negative quarters in that time, and has had
> a 10 year annualized total return of nearly 5%. (in '94,
> it actually had a total return of -0.08%, the only down year
> since it started, and that was sandwiched between two years
> of +12.74% and +7.07%). That fund is VFSTX.
I assume that a fund like VFSTX would be exempt from federal tax but
not state tax (PA tax is 3.07%)?
It seems to me that the general consensus says that it is not worth it
to try to squeeze an additional 1-2% at the risk of principal loss.
For the sake of argument, at what point is it worth it? Maybe it
never is? If one had 100k in liquid savings, would the risk be
warranted to invest the "non-emergency" ****tion of those savings in an
effort beat the normal CD/savings return by using a bond fund or
similar? Obviously there is a price to be paid for liquidity, and a
true emergency should be kept in a low risk, liquid savings account.
There is also a risk in trying to increase yield. But, is there not a
risk in failing to capitalize on your non-emergency cash flow? For
example, if inflation is at 4%, and one invests non-emergency cash in
a CD or savings account that is earning around the same minus taxes,
that person is losing money, no? I suppose the answer to this would
be to invest in long term instruments like 401ks, IRAs, etc. However,
maybe the point of this cash is for a rainy day type fund that isn't
necessarily emergency but not retirement either. I suppose the cost
to benefit ratio really isn't in favor of a mid term investment of
this type, and probably accounts for the fact that many people only
view investments in terms of short term emergency savings and
retirement.
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