Gyroscopic Investing

There are some previous discussions of Vanguard treasury funds, including VGSH, versus SHV and SHY:

http://gyroscopicinvesting.com/forum/ht ... ic.php?t=5

http://gyroscopicinvesting.com/forum/ht ... ic.php?t=5

I googled and found an old prospectus for VGSH (how does one get a hold of a fund prospectus before buying?). Unfortunately, it looks like it is structured like the other Vanguard treasuries (excepting EDV) with up to 20% allowed in other government mortgage-backed bonds. It currently holds essentially 100% treasuries but it seems that won't always be the case.

A Vanguard rep assured me that these other bonds are backed by the full faith and credit of the US government when I asked about 100% treasury funds, misleading fund names, and catering more to PP investors, but she said she passed along my concerns.

Anyway, since there seems to be no 100% short-term treasury option at Vanguard, how bad is it to have up to 20% in mortgage-backed government bonds in your cash allocation part of the year?

I do automatic dollar-cost average investing to max out our IRAs and buying non-Vanguard funds costs me $7 per trade, so investing in SHY or something similar isn’t really feasible in this manner for me. I don't want to rack up $84+ per year in transaction fees.

How is this as a compromise? Buy both VGSH and SHY. Maintain the minimum in VGSH ($3k or whatever) and funnel the monthly automatic investments into it since Vanguard ETFs are commission-free in my brokerage IRA. Then once per year exchange any VGSH balance above the minimum for shares in SHY. That would keep transaction costs to a minimum ($7/year) and keep the non-treasury bonds in my cash allocation down as well.

When/if Vanguard’s treasury money market opens up again, I’m going to jump in right away. I’m stuck using prime money markets as the sweep accounts for my brokerage accounts right now.

I have half my money in Vanguard and half my money in Fidelity. Having lived with the two side-by-side over the past few years, I can say that I'm becoming less satisfied with my Vanguard account. I love Vanguard's Total Stock Market fund, and its low fees. But, I'm very much disappointed by the lengths Vanguard seems to go to in order to muck-up "cash"-like investments. Their bond desk was very expensive and restrictive (the last time I checked), their Treasury Money Market is closed, and their "Treasury" funds are loaded with junk.

The good news is that Vanguard just introduced same-day transactions — debiting from your bank account. Which gives us more options for funding Vanguard transactions.

Fidelity has many good "cash" options, but more importantly, Fidelity and Schwab now offer free Treasury transactions. So, Fidelity and Schwab allow you to create your own short term treasury ladder for free.

I am now thinking of moving all of my bond and cash allocations to Fidelity and only using Vanguard for my Stock allocation.

Your compromise sounds reasonable.

Actually I think VGSH has no minimum since it's an ETF.  So you could clear out your entire VGSH position every year.  It's Vanguard's mutual funds that have a $3k minimum, e.g. VFISX.

I share your frustration, but as a practical matter, I don't think having 20% of one year's contributions in agency bills is a serious problem.  It's certainly not ideal, but there's a grain of truth to their credit risk being very similar to that of T-bills.  A sub-portfolio of 80% T-bills and 20% full-faith-and-credit bills should behave pretty much the same as 100% T-bills in all but the most extreme conditions.

I'm disappointed that Vanguard can't KISS and limit their Treasury-branded funds to honest-to-goodness treasury bonds.  It's odd given that they're usually so forthright about their products. 

I was wrong about EDV. I looked at the prospectus and even it isn't required to hold essentially 100% treasuries. 

I suppose I'll have to do the same thing with EDV and TLT as I was thinking of doing with VGSH and SHY.

I just put all contributions into cash and follow the usual rebalancing rule.  When you do that, you can go a long time (years) without needing to transact the non-cash assets.  That lets me hold TLT and IAU in a Vanguard account without worrying about their commissions.