Cash Alternatives

[Hillis Kauffman]

#43867

Are Vanguard Short-term investment grade VFSTX fund and GNMA VFIIX fund suitable for parking money until market correction. I have about 60% of retirement in these funds? Should I stay away from all bond related funds in general and just use money market?

Thanks—Hillis

[Sean Hyman]

#43871

Bonds go up and down. Money markets are steady.

So, I don’t suggest being in bonds. I suggest being in money market.

Now…those funds will likely not fall nearly like the overall market. It could be minimal. But I’d rather be in something that stays at a steady $1 per share, such as a money market fund.

The risk of the asset dipping is not worth the paltry additional interest you’d earn, in my opinion. Therefore, you’d have a risk-to-reward ratio flipped against you.

But will those funds to better, relatively speaking, than stocks in the downtrend? Yes.

[Sean Hyman]

#43872

The only way it makes sense, to me, to be in those funds at a time like this is if you’re retired and living off of the interest and you won’t need to tap those funds for at least 5-10 years.

But if you’re just looking to park cash until the stock fallout is mostly over to then reinvest, then its best to be in money market, in my opinion. But in the end, that decision has to be yours.

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