Investing Classroom

Course 208: How to Invest for Short-Term Goals
In this course
1. Introduction
2. Money Market Funds
3. Certificates of Deposit
4. Ultrashort-Bond Funds
5. Short-Term Municipal Bond Funds
6. Bank-Loan Funds
Course Catalog

Short-Term Municipal Bond Funds

Short-term municipal bond funds, or munis, buy slightly longer-term securities than ultrashort bond funds do.

Because they carry longer durations, short-term muni funds are more sensitive to interest-rate shifts than ultrashort funds. Therefore, they gain more than ultrashort funds when interest rates drop.

Buying an insured muni fund won't lessen the interest-rate risk. While insurance protects against defaults, it can make funds even more vulnerable to rate changes.

If you're saving for a home or another longer-term goal and you can weather some rougher patches, short-term muni funds fill the bill--especially if you're in a high federal-tax bracket. That's because these funds only buy municipal bonds, whose interest is exempt from federal income taxes.

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