Buying new Vanguard Funds

I’ve been reading through the prospectus for some of the Vanguard tax-exempt funds.  There are four that generally cover the municipal funds markets:

Comparing Vanguard Tax-Exempt Funds

They all have great expense ratios of 0.2% and credit ratings (for what they’re worth) of AA or AA-.  What is most interesting to me is a comparison of duration to yield.  Duration, in brief, is a standardized measure of bond price sensitivity to changes in interest rates.  High duration bonds (or funds) swing more to a 1% change in interest rates than lower duration bonds.  When I graph the relationship I get a very straight looking line:

vanguard_tax_exempt_yield_vs_duration

In essence this is the current yield curve for this family of funds.  The leftmost point is the short-term tax-exempt bond fund, followed by limited-term, then intermediate term, and finally long-term.

So what was my decision?  I bought into 3 of the 4, the short-term, medium-term, and long-term.  They all look like great funds.  I’ll keep you posted.

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