Short-Term Bond Funds Are Safe
But most of these funds don't pay much more than 1%.
I have money in short-term bond funds, and I’m worried about a hit from inflation. But if I keep the funds long enough, won’t the value improve as new money from maturing bonds is invested at higher rates? --W.K., via e-mail
If interest rates were to rise, you would probably lose some of your principal. But depending on the timing of cash flowing into and out of a fund, current yields would start to improve. So you would be looking at a small, one-time loss at worst.
The good news is that the principal in short-term funds is safe from interest-rate increases for now. And Kiplinger is forecasting a 2.3% increase in consumer prices this year, so we don’t think inflation will be a serious problem. More to the point, the Federal Reserve says it plans to keep short-term interest rates near zero until the unemployment rate drops substantially, and that probably won’t occur for at least two more years. The problem is that most of these funds are stuck with investments that don’t pay much more than 1%. Still, as substitutes for CDs or savings accounts, there’s nothing to worry about.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
My thanks to Jeff Kosnett for his help this month.
-
Stocks Chop as the Unemployment Rate Jumps: Stock Market TodayNovember job growth was stronger than expected, but sharp losses in October and a rising unemployment rate are worrying market participants.
-
Should You Renew Your CD?With rate cuts impacting earnings, we examine if now is a wise time to renew CDs.
-
7 Ways to Plan Now to Save on Medicare IRMAA Surcharges LaterUnderstand the critical two-year lookback period and why aggressive planning before you enroll in Medicare is the most effective way to minimize IRMAA.
-
It’s Not Too Late to Boost Retirement Savings for 2018retirement Some retirement accounts will accept contributions for 2018 up until the April tax deadline.
-
Making the Most of a Health Savings Account Once You Turn Age 65
Making Your Money Last You’ll face a stiff penalty and taxes if you tap your health savings account for non-medical expenses before the age of 65. After that, the rules change.
-
Using a 529 Plan for High School
529 Plans You’re now able to withdraw up to $10,000 tax-free from a 529 plan each year for K-12 tuition.
-
Reporting Charitable IRA Distributions on Tax Returns Can Be Confusing
IRAs Taxpayers need to be careful when reporting charitable gifts from their IRA on their tax returns, or they may end up overpaying Uncle Sam.
-
Ex-Workers Get More Time to Repay 401(k) Loans401(k)s If you leave your job while you have an outstanding 401(k) loan, Uncle Sam now gives you extra time to repay it -- thanks to the new tax law.
-
The 11 Most Valuable Personal-Finance Lessons of 2018
Financial Planning How to reduce taxes and medical bills, help the next generation save for retirement and protect against identity theft were some of the issues on readers’ minds in 2018.
-
The Rules for Making a Tax-Free Donation from an IRA
IRAs Making tax-free gifts to charity from an IRA is gaining in popularity among older investors, thanks to changes under the new tax law. Here’s what you need to know to make a qualified charitable distribution.
-
New Rules on Capital Gainsinvesting Rates didn’t change, but they’re pegged to your income instead of your tax bracket.
