Treasury fund vs treasury fund index?

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kjsammy
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Treasury fund vs treasury fund index?

Post by kjsammy »

Hello,
Last night my sister allocated some funds in a taxable account. Some money was allocated to the short term treasury fund, investor shares.
When we went to allocate it and started typing the name there was a short term treasury fund index in the list. We chose the fund, not the index, because it was first on the list. I see the index has a lower cost.
What is the difference? Why would you choose one or the other?
Thanks.
Added (thanks dukeblue):
Short term treasury fund VFISX, https://investor.vanguard.com/mutual-fu ... file/VFISX
Short term treasury index, VSBSx, https://investor.vanguard.com/mutual-fu ... file/VSBSX

VFISX does a bit better than VSBSX. Does it respond to interest rate changes sooner?
Last edited by kjsammy on Fri Sep 24, 2021 9:23 am, edited 3 times in total.
dukeblue219
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Re: Treasury fund vs treasury fund index?

Post by dukeblue219 »

Possibly one is an active fund while one is indexed. Could you provide the tickers or fund names?
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kjsammy
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Re: Treasury fund vs treasury fund index?

Post by kjsammy »

Done, thanks,
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retired@50
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Re: Treasury fund vs treasury fund index?

Post by retired@50 »

kjsammy wrote: Fri Sep 24, 2021 8:54 am What is the difference? Why would you choose one or the other?
The difference appears to be small. In this case, based on the PV link below, it appears the active managers are adding "something" worthwhile.

PV link: https://www.portfoliovisualizer.com/bac ... ion2_2=100

Given the current yield, you might consider finding a HYSA. Seems like less risk with higher yield.
Here's one example: https://www.marcus.com/us/en/savings/high-yield-savings

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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kjsammy
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Re: Treasury fund vs treasury fund index?

Post by kjsammy »

Thanks for that. I will consider it.
Simplicity has a high value for me. I have done work to not have 2 or 3 bank accounts, funds in multiple places and too many funds. It feels fantastic.
I doubt that money in the treasury fund is at risk. Any earnings will not be taxed by the state. The difference between the st treasury fund and the bank would be about 0. If the money were at actual risk then that would make a difference.
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retired@50
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Re: Treasury fund vs treasury fund index?

Post by retired@50 »

kjsammy wrote: Fri Sep 24, 2021 10:10 am I doubt that money in the treasury fund is at risk.
I was referring to share price movement based on changes in interest rates, not default risk. I agree that treasury bonds are safe in that regard.

The current price of the Short Term Treasury Fund (VFISX) is $10.69, however, since the 1991 fund inception, the fund has traded between $9.78 and $11.04 per share.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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ruralavalon
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Re: Treasury fund vs treasury fund index?

Post by ruralavalon »

retired@50 wrote: Fri Sep 24, 2021 9:37 am
kjsammy wrote: Fri Sep 24, 2021 8:54 am What is the difference? Why would you choose one or the other?
The difference appears to be small. In this case, based on the PV link below, it appears the active managers are adding "something" worthwhile.

PV link: https://www.portfoliovisualizer.com/bac ... ion2_2=100

Given the current yield, you might consider finding a HYSA. Seems like less risk with higher yield.
Here's one example: https://www.marcus.com/us/en/savings/high-yield-savings

Regards,
Vanguard Short-Term Treasury Idx Admiral (VSBSX) had a better risk adjusted return (higher Sortino Ratio), and a lower correlation to the stock market.

My default general preference is for an index fund over an actively managed fund.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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kjsammy
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Re: Treasury fund vs treasury fund index?

Post by kjsammy »

Thank you. Since this was just bought there should not be any consequences to exchanging it for a the index fund. I did not realize there would be multiple choices to a short term Treasury fund.
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Re: Treasury fund vs treasury fund index?

Post by chrisdds98 »

kjsammy wrote: Fri Sep 24, 2021 5:16 pm Thank you. Since this was just bought there should not be any consequences to exchanging it for a the index fund. I did not realize there would be multiple choices to a short term Treasury fund.
you'll have to pay capital gains tax on any increase in value.
000
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Re: Treasury fund vs treasury fund index?

Post by 000 »

I would use the index (0.07% ER) over the investor shares of the active fund (0.20% ER), but I would prefer the admiral shares of the active fund (0.10% ER) over either. There do seem to be enough bond market inefficiencies to reliably clear 0.03% ER.
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ruralavalon
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Re: Treasury fund vs treasury fund index?

Post by ruralavalon »

000 wrote: Fri Sep 24, 2021 8:41 pm I would use the index (0.07% ER) over the investor shares of the active fund (0.20% ER), but I would prefer the admiral shares of the active fund (0.10% ER) over either. There do seem to be enough bond market inefficiencies to reliably clear 0.03% ER.
Both are good choices.

Vanguard offers so many good short-term and intermediate-term bond funds with good credit quality and low expense ratios that it just makes it hard to choose :D .
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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Re: Treasury fund vs treasury fund index?

Post by afan »

The active fund had a slightly higher return and slightly higher volatility. The Sharpe ratio was higher for the index fund. I suspect that the active fund had, on average over the period, a longer duration. This worked out in the past while rates were falling. No assurance that it will work out in the future. No assurance that the active fund would continue to have a longer duration.

Both are low cost ways to get short term Treasurys. I would consider the two funds essentially the same.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama
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Re: Treasury fund vs treasury fund index?

Post by 000 »

ruralavalon wrote: Sat Sep 25, 2021 7:22 am
000 wrote: Fri Sep 24, 2021 8:41 pm I would use the index (0.07% ER) over the investor shares of the active fund (0.20% ER), but I would prefer the admiral shares of the active fund (0.10% ER) over either. There do seem to be enough bond market inefficiencies to reliably clear 0.03% ER.
Both are good choices.

Vanguard offers so many good short-term and intermediate-term bond funds with good credit quality and low expense ratios that it just makes it hard to choose :D .
I hope with the transition to ETFs there will be ETF versions of their active bond funds with the admiral ER.
dukeblue219
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Re: Treasury fund vs treasury fund index?

Post by dukeblue219 »

000 wrote: Sat Sep 25, 2021 4:38 pm
ruralavalon wrote: Sat Sep 25, 2021 7:22 am
000 wrote: Fri Sep 24, 2021 8:41 pm I would use the index (0.07% ER) over the investor shares of the active fund (0.20% ER), but I would prefer the admiral shares of the active fund (0.10% ER) over either. There do seem to be enough bond market inefficiencies to reliably clear 0.03% ER.
Both are good choices.

Vanguard offers so many good short-term and intermediate-term bond funds with good credit quality and low expense ratios that it just makes it hard to choose :D .
I hope with the transition to ETFs there will be ETF versions of their active bond funds with the admiral ER.
Actively-managed ETFs are exceedingly rare, however. See https://www.fidelity.com/learning-cente ... ly-managed
000
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Re: Treasury fund vs treasury fund index?

Post by 000 »

dukeblue219 wrote: Sat Sep 25, 2021 4:45 pm
000 wrote: Sat Sep 25, 2021 4:38 pm
ruralavalon wrote: Sat Sep 25, 2021 7:22 am
000 wrote: Fri Sep 24, 2021 8:41 pm I would use the index (0.07% ER) over the investor shares of the active fund (0.20% ER), but I would prefer the admiral shares of the active fund (0.10% ER) over either. There do seem to be enough bond market inefficiencies to reliably clear 0.03% ER.
Both are good choices.

Vanguard offers so many good short-term and intermediate-term bond funds with good credit quality and low expense ratios that it just makes it hard to choose :D .
I hope with the transition to ETFs there will be ETF versions of their active bond funds with the admiral ER.
Actively-managed ETFs are exceedingly rare, however. See https://www.fidelity.com/learning-cente ... ly-managed
I assume that will change over the next 10 years especially if Vanguard pushes investors away from its brokerage.
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Re: Treasury fund vs treasury fund index?

Post by ruralavalon »

000 wrote: Sat Sep 25, 2021 4:38 pm
ruralavalon wrote: Sat Sep 25, 2021 7:22 am
000 wrote: Fri Sep 24, 2021 8:41 pm I would use the index (0.07% ER) over the investor shares of the active fund (0.20% ER), but I would prefer the admiral shares of the active fund (0.10% ER) over either. There do seem to be enough bond market inefficiencies to reliably clear 0.03% ER.
Both are good choices.

Vanguard offers so many good short-term and intermediate-term bond funds with good credit quality and low expense ratios that it just makes it hard to choose :D .
I hope with the transition to ETFs there will be ETF versions of their active bond funds with the admiral ER.
Why wait for Exchange Traded Funds (ETFs), if you prefer an actively managed fund why not buy the treasury bond fund you want in a regular mutual fund?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
000
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Re: Treasury fund vs treasury fund index?

Post by 000 »

ruralavalon wrote: Sat Sep 25, 2021 5:12 pm
000 wrote: Sat Sep 25, 2021 4:38 pm
ruralavalon wrote: Sat Sep 25, 2021 7:22 am
000 wrote: Fri Sep 24, 2021 8:41 pm I would use the index (0.07% ER) over the investor shares of the active fund (0.20% ER), but I would prefer the admiral shares of the active fund (0.10% ER) over either. There do seem to be enough bond market inefficiencies to reliably clear 0.03% ER.
Both are good choices.

Vanguard offers so many good short-term and intermediate-term bond funds with good credit quality and low expense ratios that it just makes it hard to choose :D .
I hope with the transition to ETFs there will be ETF versions of their active bond funds with the admiral ER.
Why wait for Exchange Traded Funds (ETFs), if you prefer an actively managed fund why not buy the treasury bond fund you want in a regular mutual fund?
I was thinking more for small accounts or at other brokers.
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kjsammy
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Re: Treasury fund vs treasury fund index?

Post by kjsammy »

Thanks for the discussion.
Would like to ask what is the value of the short term treasury at vanguard instead of a high yield savings account? There are many many who have treasuries so their must be a reason.
Does the treasury fund react faster to interest rate changes? But that would mean that the yield would be lower yes?
Is it the ability to buy quickly at a dip?
Or might the bank change their interest rate and then the power of inertia allows them to keep most of their customers?
If my sister does switch to from the managed to the index soon hen the capital gains would be almost nothing I guess.
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Re: Treasury fund vs treasury fund index?

Post by dukeblue219 »

kjsammy wrote: Sun Sep 26, 2021 8:15 am Thanks for the discussion.
Would like to ask what is the value of the short term treasury at vanguard instead of a high yield savings account? There are many many who have treasuries so their must be a reason.
If you have "normal" amounts to invest a HYSA might well be better even though the yield is still low. However, if you have millions or billions (think corporations, foundations, etc) then there's no alternative with safety. You don't want to keep $5B in short term financing in a business checking account or gold coins. Short term treasuries are at least a safe holding place,, and virtually every 401k has one as an option as well.
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Re: Treasury fund vs treasury fund index?

Post by UpperNwGuy »

000 wrote: Sat Sep 25, 2021 4:38 pm I hope with the transition to ETFs there will be ETF versions of their active bond funds with the admiral ER.
Most of Vanguard's ETFs have ERs that are lower than the admiral ERs. In fact, that's a sore point with many of us who use admiral funds at Vanguard.
000
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Re: Treasury fund vs treasury fund index?

Post by 000 »

UpperNwGuy wrote: Sun Sep 26, 2021 9:20 am
000 wrote: Sat Sep 25, 2021 4:38 pm I hope with the transition to ETFs there will be ETF versions of their active bond funds with the admiral ER.
Most of Vanguard's ETFs have ERs that are lower than the admiral ERs. In fact, that's a sore point with many of us who use admiral funds at Vanguard.
I think ETFs are the future. Be prepared for your "soreness" to increase.
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Re: Treasury fund vs treasury fund index?

Post by UpperNwGuy »

000 wrote: Sun Sep 26, 2021 3:42 pm
UpperNwGuy wrote: Sun Sep 26, 2021 9:20 am
000 wrote: Sat Sep 25, 2021 4:38 pm I hope with the transition to ETFs there will be ETF versions of their active bond funds with the admiral ER.
Most of Vanguard's ETFs have ERs that are lower than the admiral ERs. In fact, that's a sore point with many of us who use admiral funds at Vanguard.
I think ETFs are the future. Be prepared for your "soreness" to increase.
I agree with you that ETFs are the future, so I've started buying non-Vanguard ETFs at Schwab and Fidelity. I view these as my future portfolio. I'm putting no new money into my mutual funds at Vanguard.
000
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Re: Treasury fund vs treasury fund index?

Post by 000 »

UpperNwGuy wrote: Sun Sep 26, 2021 7:51 pm I agree with you that ETFs are the future, so I've started buying non-Vanguard ETFs at Schwab and Fidelity. I view these as my future portfolio. I'm putting no new money into my mutual funds at Vanguard.
:shock:

You went overboard the ship altogether?!?!

What ETF families are you using for your new portfolio?
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Re: Treasury fund vs treasury fund index?

Post by UpperNwGuy »

000 wrote: Sun Sep 26, 2021 7:53 pm
UpperNwGuy wrote: Sun Sep 26, 2021 7:51 pm I agree with you that ETFs are the future, so I've started buying non-Vanguard ETFs at Schwab and Fidelity. I view these as my future portfolio. I'm putting no new money into my mutual funds at Vanguard.
:shock:

You went overboard the ship altogether?!?!

What ETF families are you using for your new portfolio?
A mix of BlackRock iShares, State Street SPDR, and Schwab.
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Re: Treasury fund vs treasury fund index?

Post by arcticpineapplecorp. »

retired@50 wrote: Fri Sep 24, 2021 9:37 am
kjsammy wrote: Fri Sep 24, 2021 8:54 am What is the difference? Why would you choose one or the other?
In this case, based on the PV link below, it appears the active managers are adding "something" worthwhile.

PV link: https://www.portfoliovisualizer.com/bac ... ion2_2=100
are adding? or have added?

we don't know what the future holds. we only know what happened in the past. but we should never assume an active manager who has outperformed an index in the past will necessarily do so in the future. maybe, maybe not. we don't know and shouldn't assume.
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
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Re: Treasury fund vs treasury fund index?

Post by retired@50 »

arcticpineapplecorp. wrote: Sun Sep 26, 2021 8:55 pm
retired@50 wrote: Fri Sep 24, 2021 9:37 am
kjsammy wrote: Fri Sep 24, 2021 8:54 am What is the difference? Why would you choose one or the other?
In this case, based on the PV link below, it appears the active managers are adding "something" worthwhile.

PV link: https://www.portfoliovisualizer.com/bac ... ion2_2=100
are adding? or have added?

we don't know what the future holds. we only know what happened in the past. but we should never assume an active manager who has outperformed an index in the past will necessarily do so in the future. maybe, maybe not. we don't know and shouldn't assume.
Touché

Have added.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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Re: Treasury fund vs treasury fund index?

Post by ruralavalon »

UpperNwGuy wrote: Sun Sep 26, 2021 7:51 pm
000 wrote: Sun Sep 26, 2021 3:42 pm
UpperNwGuy wrote: Sun Sep 26, 2021 9:20 am
000 wrote: Sat Sep 25, 2021 4:38 pm I hope with the transition to ETFs there will be ETF versions of their active bond funds with the admiral ER.
Most of Vanguard's ETFs have ERs that are lower than the admiral ERs. In fact, that's a sore point with many of us who use admiral funds at Vanguard.
I think ETFs are the future. Be prepared for your "soreness" to increase.
I agree with you that ETFs are the future, so I've started buying non-Vanguard ETFs at Schwab and Fidelity. I view these as my future portfolio. I'm putting no new money into my mutual funds at Vanguard.
Exchange Traded Funds (ETFs) may be "the future", but they won't overtake regular mutual funds anytime soon. Perhaps in several more decades. Morningstar (9/2/2021), "Farewell, Mutual Funds", link.

"Currently, U.S. mutual funds hold $18.2 trillion in assets, as opposed to $5.5 trillion for ETFs."

"Mutual funds will not disappear. They will survive on sheer inertia for at least several decades, as their annual net redemption rate is but a fraction of their enormous bulk. Furthermore, they will remain a mainstay of 401(k) plans for the foreseeable future, because 401(k) recordkeepers struggle to handle ETFs. (This difficulty is largely operational rather than fundamental.)"

I am not sore about the 0.01% difference in expense ratios between Vanguard Total Stock Market ETF (VTI) and Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX). Even with a large holding in total stock market the 0.01% difference is meaningless, it wouldn't change my retirement lifestyle one bit.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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Re: Treasury fund vs treasury fund index?

Post by ruralavalon »

UpperNwGuy wrote: Sun Sep 26, 2021 7:56 pm
000 wrote: Sun Sep 26, 2021 7:53 pm
UpperNwGuy wrote: Sun Sep 26, 2021 7:51 pm I agree with you that ETFs are the future, so I've started buying non-Vanguard ETFs at Schwab and Fidelity. I view these as my future portfolio. I'm putting no new money into my mutual funds at Vanguard.
:shock:

You went overboard the ship altogether?!?!

What ETF families are you using for your new portfolio?
A mix of BlackRock iShares, State Street SPDR, and Schwab.
All three offer some good, very diversified, index ETFs with low expense ratios.

But why would anyone concerned about tiny differences in expense ratios want to use SPDR S&P 500 ETF Trust (SPY) with an expense ratio of 0.09%?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
UpperNwGuy
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Re: Treasury fund vs treasury fund index?

Post by UpperNwGuy »

ruralavalon wrote: Mon Sep 27, 2021 7:51 am
UpperNwGuy wrote: Sun Sep 26, 2021 7:56 pm
000 wrote: Sun Sep 26, 2021 7:53 pm
UpperNwGuy wrote: Sun Sep 26, 2021 7:51 pm I agree with you that ETFs are the future, so I've started buying non-Vanguard ETFs at Schwab and Fidelity. I view these as my future portfolio. I'm putting no new money into my mutual funds at Vanguard.
:shock:

You went overboard the ship altogether?!?!

What ETF families are you using for your new portfolio?
A mix of BlackRock iShares, State Street SPDR, and Schwab.
All three offer some good, very diversified, index ETFs with low expense ratios.

But why would anyone concerned about tiny differences in expense ratios want to use SPDR S&P 500 ETF Trust (SPY) with an expense ratio of 0.09%?
I dunno. I certainly don't use SPY.
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