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It's my first time on this board, so please bear with me. (Bonds also still confuse me, so I hope not to sound too unintelligent here.)

I'm looking for someplace to keep my emergency fund -- the fund with three to six months' of living expenses stashed away in case of unemployment, catastrophy, etc. (Not a place to save for a car or anything like that. Hopefully I'll never have to access these funds.)

Anyway, I'm not looking for stellar returns as this isn't something I want to expose to too much risk. My initial thought was a short-term bond fund (from Vanguard). It seemed relatively stable for long-term holding and, as a bonus, would help balance out a heavily-weighted equity portfolio. Then I came across the Vanguard Inflation-Protected Securities Fund and I'm intrigued.

Anyone offer any thoughts on the pros and cons of this Fund as a place to stash emergency funds for, hopefully, the long term?

Thanks in advance for any and all comments.
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ORIGINAL QUESTION: I'm looking for someplace to keep my emergency fund -- the fund with three to six months' of living expenses stashed away in case of unemployment, catastrophy, etc. (Not a place to save for a car or anything like that. Hopefully I'll never have to access these funds.)



Went out to Morningstar and looked up Vanugard Inflation-Projected Securites. they liked it very much (5 star) BUT pointed out that it has been more volatile than the Intermediate Bond funds. They compared it to FGMNX, STVSX, VFIIX, VIPSX.

I did the cost analyzer screen and VIPSX looked really good. Its costs on $10000 are running at $22. That helps it give a better rate of return to the investor over even a three year period. Current year to date return is over 7%.

This looks to me like a nice place to park some intermediate cash. I would like to hear other views on this.

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bheindl wrote:

I'm looking for someplace to keep my emergency fund -- the fund with three to six months' of living expenses stashed away in case of unemployment, catastrophy, etc.

You're talking about emergency money here. IMO, the TIPS fund may be appropriate for the bond allocation of your overall portfolio, but is probably inappropriate for your Efund. The short-term bond fund would be about as risky as you'd want to get with this money.

I'd just put it into a money market fund. Personally, I use Vanguard Prime Money Market Fund for my emergency money.

Jared

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"Went out to Morningstar and looked up Vanugard Inflation-Projected Securites. they liked it very much (5 star) BUT pointed out that it has been more volatile than the Intermediate Bond funds. They compared it to FGMNX, STVSX, VFIIX, VIPSX.

I did the cost analyzer screen and VIPSX looked really good. Its costs on $10000 are running at $22. That helps it give a better rate of return to the investor over even a three year period. Current year to date return is over 7%.

This looks to me like a nice place to park some intermediate cash. I would like to hear other views on this."

Morningstar ratings are essentailly meaningless. The only thing really worth looking at is costs for a fund compared to costs for anaolgoous funds. Vanguard is consistently at or near the lowest for costs.

The TIPS fund is subject to interest rate, just like any other bond fund. There is an ongoing argument over whether it is somewhat less subject to interest rate risk than would be a regular Treasury fund of similar durations (durations on TIPS seem to be misleading), but if interest rates go up (specifically the fixed component on TIPS), the fund's NAV will go down. At any rate, you won't be getting 7% returns even if rates hold steady, unless somehow we have 5% plus inflation with no rise in interest rates. Most of the 7% comes from the capital gain component.

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