I have some money set aside, earmarked for use as the deposit for the purchase of a home. The money is currently invested in a money market fund, in a taxable account (at Vanguard).
I won't be buying a home for another year or two, and so I'd like to invest (some of) it in a manner such that its buying power is preserved (because inflation is slowly eroding its value). Given my time horizon, the investment must be relatively conservative.
I've been looking at short-term bond funds, since those funds have a shorter duration and hence are less sensitive to changes in interest rates. I noticed that Vanguard has a new short-term TIPS fund, VTAPX. In answer to the question about who should invest in this fund, Vanguard states that:
- Investors seeking a bond fund that provides inflation protection.
- Investors willing to accept some volatility in income distributions and modest fluctuations in share price.
This seems to fit the bill. Does use of this fund make sense, for preserving the purchasing power of money I'll need in, say, a couple of years?
There is a nominal fund, VBIRX, that is also indexed (the same as for VTAPX). That fund seems to be intended for generating income. About who should buy this fund, Vanguard says:
- Investors seeking a high level of interest income.
- Investors willing to accept modest fluctuations in share price.
Would (nominal) VBIRX better then (real) VTAPX for this purpose? Or should I hedge, perhaps, by buying an equal amount of each fund? I don't need this money to generate income -- I wish only for its purchasing power to be preserved, over a 1- or 2-year time horizon.
I'm trying to wrap my head around short-term bond funds, and to determine whether they are the intended mechanism for the investment problem I'm having. Any advice you have about such things would be much appreciated.