Bogleheads

[tgduffy]

I have about $30,000 which is considered our liquid emergency funds. While keeping them liquid I am trying to pinch out a little extra yield. I recently opened up a 1.85% savings account with American Express, but they just drpped the rate to 1.70% so I pulled it out. I noticed Vanguards Short Term Fed Fund VSGBX is yielding higher than the typical money market accounts but doesn't seem too volitale. Is this a good place to drop liquid assets?

[KyleAAA]

I'd have left it in the savings account. 1.7% is really good concerning the alternatives. Mine is currently parked at ING earning 1.3%.

The short-term bond fund wouldn't be the worst thing in the world you could park your emergency fund in, but why bother? You'd only make another $400 or so per year but you'd be taking on a non-trivial amount of risk to do so.

[Chuck T]

tgduffy

First, welcome to the forum. If the $30k is emergency funds that must remain liquid, they should be placed in a MM or FDIC insured bank account or CD's. The bond fund you mentioned is a good one, but can still go down in value. Is it worth the risk for the extra yield.? Only you can answer that question. Good luck.
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[tgduffy]

Thanks Kyle for your input. I was comparing the 1.7% at AmEx with the fund's 1, 3 5, and 10 year yield and figured with virtually no risk I was doubling my return. Am I missing something here?

[nisiprius]

"I noticed Vanguards Short Term Fed Fund VSGBX is yielding higher than the typical money market accounts but doesn't seem too volatile." Yes, but this was always true, so why didn't you have your money there before?

How volatile is "not too volatile?" I see a place on their "growth of $10,000" chart in mid-2007 where there's a little blip.

If you'd put $10,000 into this fund in 1999, at that point in mid-2007 you'd have seen $15,534.67. One month later $15,440.01. One month later, $15,360.56. Compared to a stock fund that's not much, but if I saw one of my bank savings accounts lose $94.66 in one month and then $79.45 the next month, I'd be pretty upset.

That means that the fund lost over 1.1% in just two months. Or to put it another way, that fund can lose in just two months almost as much as your money market fund makes in a year.

I don't want to overstate this. I'm just asking, when you say it is "not too volatile," is that what you mean by "not too volatile?"

Even though it's just a small amount, there's a big difference between the kind of account that never loses money (bank accounts, money market accounts, savings bonds) and the kind of account that sometimes does.
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[tgduffy]

I guess my "not too volitale" referred to minimal loss in the short term. Even though this is my emergency fund, i am making the assumption that I could wait 3 to 6 months to draw from it if I had too as I have access to other funds for 'real' emergencues (a very generous mother-in-law that wouldn't need to be paid back for awhile. Maybe I should simplify my question = Where should I park 6 months worth of funds for short term needs, AmEx at 1.7% or the short term fund currently at a 7% last 12 months yield?

[DaveTH]

[tgduffy]

Ouch, maybe I'm really mixed up. The fund I am referring to is the Short Term Fed Fund fund (VSGBX) and Vanguard's data says it has yielded 3.04% ytd, 7.11% for 1 year, and 4.64% for 5 years. What am I missing here?

[LadyGeek]

There's a not too subtle point here. Emergency funds have to balance need vs. yield. IOW, the whole reason they're called emergency funds is because you need things in a hurry.

For example, your sewer line unexpectedly blocks up and you need $300 to clean it (emergency service), followed by $2,500 to excavate and replace a broken line (trap) a few days later. (That was my excitement last week, the joys of home ownership...)

Here's how I do it. With 6 - 8 months designated as "emergency funds":

10% is available for immediate access. For example, a local bank savings account that can be tapped with an ATM card.
40% is available with a 2-3 day delay. This is for those high-yield savings accounts that are better than your local bank. ING, for example.
50% is available in the next few months or longer. For those things that you can plan for in advance, like home improvement or a new car. In a true emergency, you can at least get to the funds (but maybe a small penalty). CDs work here, especially laddering. You can time maturity dates so something comes due every few months or so.

Search the forum for "emergency fund" and you can find a few more threads on the topic.

http://www.bogleheads.org/foru....b9fa4fc392
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[Eureka]

[LongDistanceRunner]

[natureexplorer]

[DartThrower]

I don't have a generous mother-in-law at the moment so I use Sheila Bair as a surrogate. She has a kindly face and she keeps my emergency money safe. Besides I hear she cooks a mean turkey at Thanksgiving. (Still waiting for the invitation though. )
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[LongDistanceRunner]

[KyleAAA]