Emergency Money in Bond Mutual Fund?

[dave1231959]

Any opinions about storing my emergency fund money in a short term bond fund like the Vanguard Short-Term Bond Index Fund or USAA's Tax Exempt Short Term or GNMA funds? Savings accounts, money markets, and CD rates are so low I find it painful to keep money there.

thanks
ds

 

[Jackbnimble]

I have 90% of my emergency fund in the Vanguard GNMA fund. I looked at it and was willing to take the slight risk for the much better return. I have access to it as quick as I did with my other online savings accounts with ING and others.

 

[Bullitt]

Dave, if you're talking about Vanguard Short-Term Bond Index (VBISX), it works as a 'cash' alternative. Just be aware that it will move with the general bond market so it carries risk.

Morningstar gives it 5 stars and names it an 'analyst pick'. More from the subscriber section:

Role in Portfolio: Core. This fund is a strong choice to anchor fixed-income portfolios with long investment horizons. It can also be a supporting player for investors seeking to limit volatility among their bond holdings. However, investors should bear in mind that the fund lacks mortgage exposure.

www.morningstar.com

Richard Moroney recommends VFSTX when allocating to cash.

 

[dave1231959]

Thanks guys - that's exactly what I was looking for!

 

[Frixxxx]

I have 90% of my emergency fund in the Vanguard GNMA fund. I looked at it and was willing to take the slight risk for the much better return. I have access to it as quick as I did with my other online savings accounts with ING and others.

+1 Jack and Bullit! Nice post and valuable insight!