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Q: I know CDs are not paying anything, so I decided to look at the lowest-risk Vanguard fixed-income funds.

When my CDs matured, I switched to Vanguard Intermediate-Term Treasury Fund and Vanguard Short-Term Investment-Grade Fund. I have other investments, but want to keep a portion safe. Does this make sense?

A: Your decision makes sense, but it is not without risk. With a CD you have neither interest-rate risk nor credit risk. By moving some money to the Vanguard Intermediate-Term Treasury Fund (ticker: VFITX) you’ve taken on some interest-rate risk to get a 0.77 percent yield.

With an average maturity of 5.6 years, this fund would be damaged by an increase in short-term interest rates. Even a small increase in rates could offset a year or more of interest income with losses in net asset value.

Vanguard Short-Term Investment-Grade Fund (ticker VFSTX) has a higher yield (1.7 percent) and a lower average maturity (2.9 years), but it has more credit risk than the Intermediate-Term Government Treasury Fund.

Neither risk can be ignored, but you are taking the risks necessary to have some income from your investments.

Q: My wife and I are both 72 years old. We are considering buying a home in a Georgetown (Texas) area that is like Sun City. We are both retired.

My wife and I have a total income of $45,323 annually. My income is about $10,000 a year, but I have several hundred thousand in savings. Most of our income is from Social Security and pensions.

We are currently renting an apartment that costs about $1,200 monthly. If we buy a house, we plan to pay equally on it, like half the mortgage and expenses. Do you think this would be a good idea, and if so, how much home can we comfortably afford?

A: According to the Del Webb website, Sun City Georgetown now offers homes priced from about $150,000 to $373,000.

Using one of the online home affordability calculators, I found that you could, in theory, afford a home that cost about $240,000 if you have no auto loans, no consumer loans or credit-card debt, and a good credit rating. You would also need to make a down payment of about $40,000.

If you try to keep your mortgage, taxes and insurance payment close to your $1,200 monthly rent payment, the house you buy should be priced closer to $200,000 with a $40,000 down payment.

The house will likely be larger than your apartment, so the utilities will be higher.

You will likely have a homeowner’s association fee to pay, and you’ll also have responsibility for ongoing repairs and replacements.

Even figuring with an optimistic and well-sharpened pencil, my bet is that a $200,000 house will have total out-of-pocket costs of at least $18,000 a year.

So your half would be $9,000. That doesn’t leave much room for any other personal expenses.


Copyright 2013,

Universal Press Syndicate