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Author: foobar73 Big red star, 1000 posts Feste Award Nominee! Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35258  
Subject: Re: Bond Funds Date: 9/10/2001 1:58 PM
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I have looked at the Strong Advantage (STADX) and Vanguard Short Term Index (VBISX). I would appreciate any advice as to the relative merits of these funds. Will the principal with either fund be relatively safe over a 2 year period? I notice that the Vanguard fund has much lower expenses - Does it carry more risk over a 2 year period?

VBISX carries somewhat more risk; it's average duration is about 2.5 years or so, while STADX is under 1 year. This means that the fluctuation of the fund price with respect to changes in interest rates will be about 2.5 times as much as with STADX. However, the duration of 2.5 years also means that, even if you incur losses due to interest rate changes, you will generally recover them in 2.5 years. In this sense, you should be "okay" with a 2 year holding period.

If you already know you want to hold for 2 years, you're probably better off just buying a bond (or CD, if you can get a competitive rate). You won't incur expenses this way, and the only possible returns you'll be giving up are the gains from further interest rate reductions, which would probably be relatively small.
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