Читать книгу Home Buying Kit For Dummies - Eric Tyson - Страница 70

You may be thinking, “Three to five years is an awfully long time to keep my money dozing away in a money market fund.”

Well, yes and no. During some time periods, investors who buy bonds maturing in five years get very little in the way of extra yield versus what they can get in a good money market fund. During other periods, three-year to five-year bonds yield a good deal more interest than money market funds yield.

Whenever you invest in bonds that won’t mature soon, you take on risk. First is the risk that the bond issuer may fall into financial trouble between the time you buy the bond and the time it’s due to mature. Second is the risk that interest rates in general can greatly increase. If the latter happens, typically caused by unexpected inflation, you may end up holding a bond that pays you less interest than the rate of inflation.

Most of the time, bonds that mature in a few years should produce a slightly higher rate of return for you than a money market or savings account. However, if you invest in such bonds, recognize that you may end up earning the same as (or perhaps even less than) you would have earned had you stuck with a money market fund. Rising interest rates can deflate the value of an investment in bonds.

Invest in bonds only if you expect to hold them for at least three to five years. If you want to invest in individual bonds and you’re not in a high tax bracket, consider Treasury bonds, which don’t require monitoring of credit risk — that is, unless the U.S. government slips into default! Also look at the yield on bank certificates of deposit. You may also consider some high-quality, short-term bond mutual funds that invest in — you guessed it — short-term bonds. A solid one is Vanguard’s Short-Term Investment-Grade.

If you’re in a high tax bracket, a tax-free money market fund is hard to beat. Some federal-tax-free bond funds to peruse include Vanguard’s Short-Term Tax-Exempt and Vanguard’s Limited-Term Tax-Exempt funds. Good, double-tax-free, short-term bond funds just don’t exist.