In the capital markets, it’s a generally accepted principle to put cash to use as opposed to letting it sit idly on the sidelines. This also applies when planning for future expenses and one way to wake up cash is to park it into short duration bond ETFs.
One to add to the consideration list is certainly the Vanguard Short Duration Bond ETF (VSDB). The fund includes all the benefits of short duration exposure, such as mitigating interest rate risk and thus, price volatility. In the current market landscape, yields are also a prime benefit, which makes this fund an ideal competitor for maximizing returns compared to money market savings accounts.
“Short-term credit has less exposure to volatility that can come from changes in interest rates compared with intermediate- and long-term bonds,” Vanguard explained in an Expert Perspectives piece.
Given the yield benefits, a fund like VSDB is an ideal place to let cash grow versus letting it sit while inflation eats away at it like rust to metal. Currently, the 30-day SEC yield on the fund is 4.51% (as of August 25), which certainly exceeds the current inflation rate.
“Just as higher-octane gas can offer better performance for vehicles designed to use it, this product can offer improved performance for investors looking to calibrate the short-term portion of their portfolios for funds not needed in the near term,” Vanguard added.
The fund doesn’t extract maximum yield by keeping exposure relegated to safe haven Treasuries. In addition to Treasuries, the fund will invest in agencies, corporates, and asset-based securities. Furthermore, it doesn’t shy away from riskier credit qualities by dipping into emerging markets (EM) debt if necessary. The result is income diversification alongside maximized yield opportunities.
Furthermore, the benefits don’t stop with just yield.
An Active Alternative
As mentioned, one of the prime features of VSDB is that it taps into the bond expertise of the Vanguard Fixed Income Group. With the U.S. Federal Reserve in flux on what to do with interest rates, active management almost becomes an imperative feature.
“That’s to take full advantage of the capabilities of Vanguard Fixed Income Group, Vanguard’s global active bond fund team, which has been running active funds for nearly 50 years,” Vanguard explained.
Additionally, VSDB offers a low expense ratio of just 0.15% or $15 for every $10,000 invested. That makes the fund competitive with even its passive fund peers that track an index.
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