This ETF will Earn You a Higher Yield than Savings Account with Tax Benefits
Please read the below for more information.
This is an ETF that Vanguard offers. Morning Star maintains a 5-star rating on this fund and a Gold rating on Vanguard. This is also where I have a portion of my cash instead of leaving my money in a savings account.
The ETF objective is to invest in very short-term treasury bonds. 35% of the fund is invested in bonds that mature within one year. 50% of the fund is invested in bonds that mature between 1-3 years. And about 15% of the fund is invested in bonds that mature between 3-5 years.
The bond fund is rarely volatile; however, when interest rates suddenly increased in 2022, this fund had its highest volatility. The volatility has stabilized since November last year so far. It's also trading at a discount ($47) from its all-time high, which was about $52 per share.
Since bond values negatively correlate to interest rates, bond values go down when rates increase. When rates go down, bond values move higher. If rates drop, this ETF value will likely move higher. If interest rates go down, the yield on this ETF will also mo lower. So, the yield is not fixed. As inflation moves lower, interest rates will also move lower, which means the yield on this fund will also move lower.
This ETF has a very low expense ratio. It's .04%, which is nothing compared to its attractive yield.
Lastly, the way I see this fund is a cash alternative. I don't want to have my cash in this fund forever, just for a short period (3 months to 1 year) until I can find a long-term solution for my money. Once I select a long-term solution like a high-quality stock at a low price, I will see this fund and buy a stock that can increase 5-10X in value.
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