Tag: short term bond fund

What is a short-term bond fund?

A short-term bond fund is a mutual fund or exchange traded fund (ETF) holding bonds with maturities between one and three years. Short-term bond funds can invest their assets in government or corporate bonds. As a general rule, the safest bonds are issued by or guaranteed by the federal government. Next come provincial issues or bonds with provincial guarantees.

If you need steady income and want to hold bond funds, we advise you to focus on those with short-term maturity dates. That’s because short-term bond funds face a lower risk from interest-rate increases (changing interest rates influence the value of existing bonds inversely. When interest rates fall, bond prices rise, and vice versa. The longer the term to maturity on the bond, the bigger the effect of a change in interest rates).You should also avoid funds that take part in any kind of speculative trading.

Interest rates are near historic lows, so bond funds that hold long-term bonds simply can’t go a lot higher than they already are. Right now, it seems more likely that interest rates will continue to hold steady or rise slightly in the short term, and move higher in the long run. This means the funds would only earn interest income on their bonds; instead of capital gains, their bond holdings could produce capital losses.

In general, short-term bond fund ETFs charge considerably lower MERs than bond mutual funds. That’s why, if you want to find and hold the best bond funds, we recommend taking the low-MER approach offered by a bond ETF.

At TSI Network, we recommend using our three-part Successful Investor philosophy:

  1. Invest mainly in well-established companies;
  2. Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; the Consumer sector; Finance; Utilities);
  3. Downplay or avoid stocks in the broker/media limelight.

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The Bank of Canada is holding interest rates steady, especially with the current inflation rate of 1.2% well below the bank’s 2% target. The bank doesn’t want to slow Canada’s economic growth with higher rates or push the dollar any higher.

Even so, the long-term outlook… Read More

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The Bank of Canada is holding interest rates steady, especially with the current inflation rate of 1.5% well below the bank’s 2% target. The bank doesn’t want to slow Canada’s economic growth with higher rates or push the dollar higher.

Even so, the long-term outlook… Read More

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The Bank of Canada is holding interest rates steady, even though the current inflation rate of 2.6% is above the bank’s 2% target. The bank doesn’t want to slow Canada’s economic growth with higher rates, or push the dollar any higher.

Still, the long-term outlook is… Read More

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The Bank of Canada is holding interest rates steady, even though the current inflation rate of 3.1% is well above the bank’s 2% target. The bank doesn’t want to slow Canada’s economic growth with higher rates, or push the dollar any higher.

Still, the long-term outlook… Read More

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June 3, 2011||How To Invest

The Bank of Canada is holding interest rates steady, even though the current 3.3% inflation rate is well above the bank’s target of 2%. The bank doesn’t want to derail Canada’s economic recovery with higher rates, or push the dollar any higher.

Even so, the long-term… Read More