If you have US cash collecting dust in your brokerage accounts, you are probably wondering if you can scrape a percent or two from them in relatively safe instruments instead of surrendering that money to your brokerage firm. After doing some exhaustive research on the matter, I believe there are three relatively low-risk ETFs to park them into, all of them offered by Vanguard and ranked from most risky to least:
- Vanguard Short-Term Corporate Bond Fund (Nasdaq: VCSH) – MER of 0.15%, duration of 2.8, yield to maturity 2.2%, invested in relatively safe corporate securities;
- Vanguard Short-Term Bond Fund (NYSE: BSV) – MER of 0.12%, duration of 2.6, yield to maturity 1.2%, invested in mostly government/treasury securities;
- Vanguard Short-Term Government Bond Fund (Nasdaq: VGSH) – MER of 0.15%, duration of 1.8, yield to maturity 0.6%, invested completely in government/treasury securities.
There is still interest rate risk embedded in these securities and you never know if there will be a 2008-style meltdown in the financial markets that would only render BSV and VGSH as cash-like instruments.
Want more yield? You have to invest in junk bonds, a much more dangerous ballgame – and potentially more expensive for investors!
As readers know, I have been in a bunkering down mentality with respect to the markets. I am very defensively positioned and do not expect much returns in my portfolio in 2011.