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Course 208: How to Invest for Short-Term Goals | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Short-Term Municipal Bond Funds | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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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. Next: Bank-Loan Funds >> |
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Learn how to invest like a pro with Morningstar’s Investment Workbooks (John Wiley & Sons, 2004, 2005), available at online bookstores. | ||
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