Which VanGuard fund is best for 2016?

March 4, 2016 2:29 PM

I'm looking to hold about $6,000 for someone for about 5 years, but keeping it in a savings account seems like a losing bet. The Vanguard Wellesley fund seems conservative enough, but its growth has plateaud for a year now according to the website.

I read somewhere that the worst investments are mature investments, as they've roughly achieved full growth. Are there alternative funds with a better promise of growth? Or will these funds come with the downside that they'll require longer-term investment of funds to account for any market fluctuations? Bonus: are there any Canadian mutual funds with the same profile as the conservative Vanguard funds?

posted by kinoeye to Work & Money (16 answers total)

Are you comfortable making this person whole if your investment loses value? How much are you willing to cover?
posted by politikitty at 2:44 PM on March 4, 2016 [7 favorites]

Five years is a fairly short time period; if this was money that the other person would "need" (rent, food, college, retirement, Honda) as opposed to "want" (Lamborghini, vacation, etc.,) I would be focused on retaining the principal rather than maximizing growth. Think savings bonds and certificates of deposit, at most something meant to keep up with inflation.
posted by SMPA at 2:51 PM on March 4, 2016 [5 favorites]

Bonds aren't perfect, but it is a madhouse out there, so, yeah.
posted by Chitownfats at 3:03 PM on March 4, 2016

Are you in Canada? You might be better off taking advantage of some of the higher interest savings accounts that are available. EQ Bank is currently offering 3%. Who knows how long it will last, but...

Here are some other higher interest accounts.
posted by stray at 3:04 PM on March 4, 2016

Best answer: So you can't simultaneously bid for higher returns and stay conservative. That's just the law of the market. You need to think about what this money is for. If it's money you inherited from a great-aunt that you plan to give to your kid when she turns eighteen as a fun present, you might take a different approach than if you're helping someone save to buy a car at the end of that period and they're going to need every dime. Wellesley is fairly conservative and would be fine if you are just hoping for modest gains and can stand some losses, but if you don't have tolerance for losses at all (beyond whatever bite inflation takes out of the sum--fortunately right now inflation is quite low), you need to go into savings or CDs. Barclays online savings is offering a 1% rate right now; you probably won't do much better than that in the U.S. for a totally liquid investment. You can also get 1.1-1.2% on one-year CDs; $6K will probably meet the minimum for most of those. If you're completely sure the person isn't going to need the money in the coming year, I'd probably go for that.

Note that if you invest in any sort of mutual fund, there are likely to be quarterly or yearly distributions of dividends and short- and long-term capital gains. If the account is in your name, they will be taxable to you. Similarly, interest paid on a savings account or CD will also be taxable to you, although it will all be at your normal rate. On $6K, this will not be a huge amount of money, but just a reminder that you will need to be ready to pay it.

One important thing: wherever you go, minimize fees. The great thing about Vanguard is its very low fees. Squeeze those dimes.
posted by praemunire at 3:23 PM on March 4, 2016 [3 favorites]

I can't imagine that investing someone else's money in your name in the US isn't a violation of some part the Patriot Act.

Huh? State laws vary a bit on how to accomplish this, but you can certainly have an account in trust for someone else.
posted by praemunire at 3:25 PM on March 4, 2016 [1 favorite]

Best answer: For $6000, I wouldn't get fancy at all and I wouldn't put it in a Vanguard fund. Wellesley has plateaued because the market has plateaued. If you see a fund that did well in 2015, that's not a good reason to invest in it in 2016: past performance does not indicate future results. So, I'd probably just put it in a CD or a high-interest savings account: Ally, Capital One 360, Discover, etc, all have some good choices. For larger amounts or different time horizons (longer time horizons, anyway!) I'd suggest a simple indexed market approach of Vanguard funds with low expense ratios. Bogleheads is a good resource for this sort of stuff. Good luck!
posted by tybstar at 4:06 PM on March 4, 2016 [5 favorites]

Response by poster: Thanks for the concern. It's for my mom who refuses to accept it while I'm still a student.

It appears that the market's too volatile right now for short-term conservative investments. Different time and place and I'd put it all in Uber (kidding).
posted by kinoeye at 4:40 PM on March 4, 2016

Given your update, I would assume your mom wants you to keep it relatively liquid for the duration of your remaining years of school. This would allow you - in the case of financial emergency - to tap into that pre-existing $6,000 before seeking outside loans/CC debt.

So, my recommendation now varies based on your current financial state. If you are already well-established with an emergency fund that covers 6 months of expenses, you can set up an account with Betterment. If not, stash it in a high-interest savings fund.
posted by samthemander at 5:32 PM on March 4, 2016

Betterment charges 0.35% for $6,000 in assets (on top of whatever fees the underlying investment will charge). There's just no reason to pay that.

It sounds like your mom doesn't want the money because she's worried you might need it. Under those circumstances, unless you are TOTALLY certain you won't, I say just put it into a "high-yield" (ha!) online savings account, e.g., Barclays or Capital One. Because, man, investment losses are one thing, but having your mom say "I told you so"--that's quite another.
posted by praemunire at 5:41 PM on March 4, 2016 [3 favorites]

Your instincts are right to invest. The "value" of your investment will decrease due to inflation if you chose a bank savings account or cd. I would put half in an a vanguard bond fund and half in a fund tracking stocks. Similar funds track similarly more or less. You are more likely to make money this way than any of the above suggestions. You may lose some money, but if you left it in there for 20 years you'd end up with thousands more than if you just put it in a cd. (Most likely). If your mom needs this money back or you need it to fix your car, don't put it in a vanguard fund. There's fees to buy and sometimes sell. Sometimes more if it's less than a year. If you know you and mom don't need it, I'd totally invest in vanguard funds! IANY accountant or financial planner (or anyone's but my own).
posted by Kalmya at 6:36 PM on March 4, 2016

How about a five-year TIPS (Treasury Inflation-Protected Securities)?
posted by OCDan at 6:40 PM on March 4, 2016

Until you give it to your mother, it's your money. So don't treat it any different than any other money you have. When you get out of school write her a check for $6000 or any other amount that strikes your fancy. Treating it as her money now when it really isn't seems to be a fallacy of mental accounting.
posted by JackFlash at 8:06 PM on March 4, 2016

In other words, you can treat it as a $6000 loan plus interest that comes due at some point in the future. You don't need a special account to handle that. Just plan on writing a check when the time comes.
posted by JackFlash at 8:17 PM on March 4, 2016 [1 favorite]

If your mom needs this money back or you need it to fix your car, don't put it in a vanguard fund. There's fees to buy and sometimes sell

Not true, at least not for the majority of their funds (and the one OP mentioned). There aren't front-end or back-end loads or purchase or redemption fees for most funds at Vanguard. There is the usual management fee (right now, 0.23%). The main argument against a more aggressive investment is really just that the OP may need the cash and it may not be there at that moment. If the OP is already comfortable, fine, but I'm inferring from mom's attitude (and OP's student-hood) that things may be a little tighter than that.
posted by praemunire at 9:08 PM on March 4, 2016 [2 favorites]

Netspend and Mondo have been on my "to research" list for a while, as some Bogleheads praise them. Essentially a debit card that has a 5% interest savings account attached, provided you obey their complex-ish rules. Up to $5k/email address. Sounds too good to be true but those Bogleheads do not mess around with the sanctity of their emergency funds. A big ymmv, here, as I have no experience whatsoever.
posted by mahorn at 9:22 PM on March 4, 2016 [2 favorites]