Short Term Taxable Bonds are bonds of short duration.
There are several very similar investment options available. Which is
best?
All of the options discussed here will likely have very similar performance
and will get the job done quite well. You can't go far wrong choosing any
of the options listed here. The funds are listed in rough overall
order of preference.
It is generally most prudent to use taxable bonds in retirement accounts. So we
only list preferences for retirement accounts. For taxable accounts
consider Short-Term Tax-Exempt Bonds.
For a listing of our preferences in other asset classes, see
here.
Retirement Accounts (i.e., tax-deferred or tax-exempt accounts)
 | DFA Five-Year Global Fixed Income Portfolio (DFGBX). E/R: 0.28%.
This fund's "variable maturity" strategy should somewhat increase
risk-adjusted returns. While it contains some foreign bonds, the
currency risk is always 100% hedged. We have only a slight preference
for DFGBX over DFGFX. DFGFX has a lower expense ratio, but DFGBX has
more room for the "variable maturity" strategy to operate over (which should
allow it to be more effective).
|
| DFA Two-Year Global Fixed Income Portfolio (DFGFX). E/R: 0.18%.
This fund's "variable maturity" strategy should somewhat increase
risk-adjusted returns. While it contains some foreign bonds, the
currency risk is always 100% hedged. The five year DFA fund gives the
"variable maturity" strategy more flexibility (more time to shift over),
which should enhance its risk/return characteristics. The two year DFA
fund has a lower E/R and has somewhat less volatility due to its shorter
duration. We have a slight preference for the five-year fund, but both
should be very good choices.
|
| Vanguard Short-Term Investment-Grade Fund (VFSTX).
E/R: 0.21%. This fund principally invests in investment grade corporate
bonds of short duration.
|
| iShares Lehman 1-3 Year Credit Bond Fund (CSJ).
E/R: 0.20%. This ETF tracks the Lehman 1-3 year Credit Index. For
more information on ETFs, see here.
|
| iShares Lehman Intermediate Credit Bond Fund (CIU).
E/R: 0.20%. This ETF tracks the Lehman 1-10 year Credit Index. For
more information on ETFs, see here.
|
| Vanguard Short-Term Bond Index Fund ETF (BSV). E/R: 0.11%. This
ETF tracks the Lehman 1-5 year Govt/Credit Index. This fund is a
different share class of the Vanguard Short-Term Bond Index Fund (VBISX). This fund suffers due
to its use of treasury bonds (which have lower expected risk-adjusted returns
than similar duration investment-grade corporate bonds). For more
information on ETFs, see here.
|
| TIAA-CREF Short-Term Bond Fund (TCSTX). E/R: 0.30%.
This fund suffers due to its use of treasury bonds (which have lower expected
risk-adjusted returns than similar duration investment-grade corporate bonds).
|
| Vanguard Short-Term Bond Index Fund (VBISX). E/R: 0.18%. This
fund tracks the Lehman 1-5 year Govt/Credit Index. This fund suffers due
to its use of treasury bonds (which have lower expected risk-adjusted returns
than similar duration investment-grade corporate bonds).
|
| PIMCO Low Duration Fund Institutional Shares (PTLDX). E/R:
0.43%. We see no reason to consider this fund given the availability of
the above lower cost alternatives. |
