Fidelity Vs. Vanguard
There has been a lot of discussion over which is the better investment vehicle between bonds, stocks and money markets. You may have already made up your mind based on your research. For the sake of comparison, let’s look at how the three various investment vehicles stack up in terms of return on equity. Here are the facts:
Bond rates have traditionally been less favorable to borrowers than stock and money market rates. That being said, they have become more favorable recently due to the sub-prime mortgage crisis. This crisis resulted in higher defaults as well as less aggressive debt strategies by lenders. This, in turn, increased available funds for corporations as well as homeowners, which all translated into higher bond rates and lower money market rates. In addition, home prices continue to rise. In short, there are a number of things going in the bond markets that are contributing to this favorable trend.
First, the amount of risk inherent in any financial instrument, including equities, tends to make it more likely that rates will fall versus rise. Bonds tend to be seen as inherently more “risky” than other investments. The greater potential losses are part of the reason that bonds trade at such low interest rates relative to other assets. On the flip side, money markets tend to be seen as being less risky in comparison to equities, particularly given their ability to allow investors to operate with minimum risk.
Bond Rates and Fidelity Vs. Vanguard Money Market Rates
As mentioned earlier, most of the recent increases in bond rates can be attributed to the subprime crisis, which caused lenders to be more aggressive in their loans. In addition, this crisis also resulted in higher default rates and lower investments as a result of lower investments by corporations and individuals. Bond rates typically increase when lenders perceive a higher risk of not being able to recoup their investment in a short period of time. For instance, a 10% rate increase from last year may seem negligible, but if you buy a one-year bond during that period, you could owe substantially more money in order to recoup your original investment, due to the lowered rates.
If you decide to choose the index option, you should consider how market factors impact your portfolio. For instance, if you are particularly concerned about market volatility, you may want to stick with bonds for your bond investments. By simply selecting a diversified portfolio consisting of different markets, you will minimize the effects of market volatility. fidelity vs. Vanguard money market rates does not take into account how the individual markets in your chosen category affect returns, but it does show how bond rates may vary over time due to varying market conditions.
Regardless of what you ultimately decide, you should make sure you understand how market factors impact your decisions. You may not always have time to perform the necessary research, so the advice of your financial advisor is very important. A good financial advisor will be able to guide you through your decision and help you choose the best-risk/best-reward investment scenario for your particular needs. Choosing a bond between Fidelity vs. Vanguard money market rates is an important decision, and one that should not be made quickly. Take the time to think about your options and do the research necessary to ensure you are making the wisest investment decision.