Savings can generally be divided into two pots: cash that must be shielded from losses and money that can tolerate a little investment risk. Short-term savings that fall into the first category should reside in federally insured deposit accounts. Top-yielding savings accounts and one-year certificates of deposit are earning 1% or more.
But maybe you have, say, interest and dividend income that you’re holding to invest later. Money that you put in a high-yielding insured account may not be as readily available as cash in an account that’s tied directly to your brokerage accounts. But money market mutual funds are currently yielding next to nothing.
Ultra-short bond funds provide an opportunity to earn a better yield without incurring much more risk. The average maturity of fund holdings is often about a year. So although yields are lower than those of longer-term bond funds, the funds are less vulnerable to rising interest rates (when interest rates increase, bond prices fall).
Sign up for Kiplinger’s Free E-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.
Watch out, though, for high expenses, which can eat into gains. And look for funds that hold mostly high-quality debt, such as government-backed bonds and investment-grade corporate bonds.
Baird Ultra Short Bond Investor (symbol BUBSX) invests in short-term Treasury bonds and low-risk corporate bonds and mortgages; it has a 0.40% expense ratio and recently yielded 0.7%. Northern Ultra-Short Fixed Income Fund (NUSFX), with annual expenses of 0.25% and a 0.7% yield, holds a solid mix that includes corporate bonds and Treasuries. Vanguard's new Ultra-Short-Term Bond (VUBFX) invests in high-quality debt, with a 0.5% yield and a low 0.20% expense ratio.
-
Stock Market Today: Have We Seen the Bottom for Stocks?Solid first-quarter earnings suggest fundamentals remain solid, and recent price action is encouraging too.
-
Is the GOP Secretly Planning to Raise Taxes on the Rich?Tax Reform As high-stakes tax reform talks resume on Capitol Hill, questions are swirling about what Republicans and President Trump will do.
-
Dividends Are in a RutDividends may be going through a rough patch, but income investors should exercise patience.
-
Municipal Bonds Stand FirmIf you have the cash to invest, municipal bonds are a worthy alternative to CDs or Treasuries – even as they stare down credit-market Armageddon.
-
High Yields From High-Rate LendersInvestors seeking out high yields can find them in high-rate lenders, non-bank lenders and a few financial REITs.
-
Time to Consider Foreign BondsIn 2023, foreign bonds deserve a place on the fringes of a total-return-oriented fixed-income portfolio.
-
The 5 Best Actively Managed Fidelity Funds to Buy Nowmutual funds In a stock picker's market, it's sometimes best to leave the driving to the pros. These Fidelity funds provide investors solid active management at low costs.
-
The 5 Safest Vanguard Funds to Own in a Volatile Marketrecession The safest Vanguard funds can help prepare investors for continued market tumult, but without high fees.
-
The 12 Best Bear Market ETFs to Buy NowETFs Investors who are fearful about the more uncertainty in the new year can find plenty of protection among these bear market ETFs.
-
5 of the Best Preferred Stock ETFs for High and Stable DividendsETFs The best preferred stock ETFs allow you to reduce your risk by investing in baskets of preferred stocks.
