How to Buy Short Term Bonds

If you expect rising interest rates, short-term bonds could become part of your investment strategy.
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Finding a safe place for your hard-earned savings that you have put aside for a big purchase such as a house, can seem daunting. Your best choice might be short-term bonds with maturities shorter than 2 years. Because bond values drop when interest rates rise, short-term bonds protect your money from losing value when the economy strengthens and rates go up -- one of the reasons short-term bonds are considered safe investments. You may buy them directly from the U.S. Treasury or purchase short-term bond mutual funds or short-term bond exchange traded funds, known as ETFs. Either way, you are making an investment that will keep your hard-earned money relatively safe.

Step 1

Determine your risk tolerance. If you are investing in short-term bonds because you think interest rates are moving higher, and you don't want to lose principal value, your risk tolerance is low. The U.S. Treasury regularly issues Treasury bills and 2-year notes that can be purchased through the Treasury Direct website.

Step 2

Consider buying short-term municipal bond funds or short-term bond exchange-traded funds if you have little or no experience with bonds. The benefits of buying a fund include professional bond portfolio management and the ability to invest small amounts of money. Buying corporate or municipal bonds directly on the open market through your broker can be a challenge if you aren't investing $100,000 or more.

Step 3

Place your orders online at the Treasury Direct website, if you plan to buy Treasury bills or notes. Your broker can suggest a good short-term mutual fund or ETF and can handle your buy transaction, or you can go directly to the mutual fund to purchase your securities.

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