Short Term Bond Funds

For investors looking for a relatively safe place to invest some money, many experts are now advising we look at short term bond funds. In actuality, a short term bond fund is a type of mutual fund with investments either exclusively, or at least predominantly, in bonds that mature in fewer than five years. Most short term bond funds have maturity dates no longer than three years out. They seek to provide a return with comparatively little risk as compared to other investment products, but it should be understood that they are investment products and as such do carry at least some amount of risk.

Good Investment during Volatile Markets
Short term bond funds tend to be more popular when the stock market becomes volatile. While they tend to pay a higher yield than current interest rates, they are still a bit risky in that losses can become elevated should interest rates have already been low when the bond funds were purchased. Also, in a volatile market, many investors would rather have bond funds with a longer maturity date hoping to ‘ride out’ the storm.

Why Short Term Bond Funds Make Good Investments
According to USNews Money, short term funds can be a wise investment for investors on the conservative side because they are not as sensitive to fluctuating interest rates as are funds with longer maturity dates. This type of bond fund has portfolios with investments generally in corporate grade, fixed-income issues with a duration ranging from 1 to 3.5 years. USNews ranks Lord Abbett Short Duration Income Fund at the top of the list with a score of 8.7 of 10.

Top Ten Short Term Bond Funds
While you may find variations in places held as the top performers, here is a list of the top ten short term bond funds as ranked by all three credit rating agencies (Moody’s, S&P and Fitch). Keep in mind that these are short term funds and may vary a bit from day to day or week to week, but you can probably assume that their ratings won’t change significantly in the near future. The top ten at the moment would include:

  1. Lord Abbett Short Duration Income Fund
  2. Thompson Plum Bond Fund
  3. Federated Intermediate Government/Corporate Fund
  4. Weitz Short-Intermediate Income Fund
  5. Vanguard Short Term Bond Index Fund
  6. Virtus Multi Sector Short Term Bond Fund
  7. Vanguard Short Term Investment Grade Fund
  8. CNI Charter Corporate Bond Fund
  9. Franklin Low Duration Total Return Fund
  10. Marshall Short Term Fund

Again, bear in mind that these may change a bit as you watch the markets, but as of this time they are all financially sound investment products with good ratings from all three agencies.

Investment Grade Bonds
Before acting on advice as to which short term bond funds to invest in, it is essential that you do your homework. Take a look at the scores given to the funds you are considering from all three of the reporting agencies prior to investing in that fund. Each of those agencies scores against different criteria so it is important to understand how the ratings were awarded and what that means in terms of your investment. While anyone can tell you that they, personally, have done well with a specific short term bond fund, the market is subject to change over time. It should be understood that a fund is only as good as its underlying investment portfolio. Short term bond funds are considered to be relatively safe investments for conservative investors, but they should still be researched before laying out any capital.

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