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:
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?
- Investors seeking a bond fund that provides inflation protection.
- Investors willing to accept some volatility in income distributions and modest fluctuations in share price.
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:
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.
- Investors seeking a high level of interest income.
- Investors willing to accept modest fluctuations in share price.
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.