This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Ultra-Short Bonds Beating Money Markets

Stocks in this article: EKIZX SIGVX STADX PRWBX

NEW YORK ( TheStreet) -- The Federal Reserve recently announced its plans to keep short-term interest rates near zero for the next two years. That was bad news for shareholders of money market funds who will continue to receive tiny yields. To get better results, many investors should consider shifting some cash from money- market funds to ultra-short bond funds.

Of the money-market funds tracked by Crane Data, the highest-yielding choice today is Schwab Cash Reserves (SWSXX), which yields a puny 0.06%. You can do better with an ultra-short fund, such as Wells Fargo Advantage Adjustable Rate Government (EKIZX), which yields 2.27%. Make no mistake, the ultra-short funds come with more risk. But at a time when the Fed is holding down rates, the odds are high that top ultra-short funds will stay in the black for the next several years.

Before buying any ultra-short bond funds, keep in mind that they are very different from money market funds. Money markets invest in high-quality securities with average maturities of less than 60 days. Because of the cautious strategy, the money funds almost never lose principal.

Ultra-short funds hold bonds with maturities up to two or three years. If interest rates rise, bond prices can fall, and the ultra-short funds could lose money. But under the Fed's current policy, there is little chance that rates will rise until the middle of 2013.

Should you abandon money markets altogether? Not necessarily. If you need a parking place for cash that you must spend in the next 12 months, it can make sense to use a money market. That way you are certain not to lose any principal. But if you plan to hold the cash for more than a year, an ultra-short fund may be the right choice. In any given month, the share price of an ultra-short fund could sink temporarily. But if you can wait, the fund should eventually rebound.

Variety of Risk

Be aware that the ultra-short funds follow a variety of strategies. Some cautious choices stick with high-quality government securities. Other portfolios aim to boost yields by investing in lower-quality issues. During the downturn of 2008, some aggressive funds were pummeled, losing more than 10%.

1 of 3

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,030.21 +6.04 0.03%
S&P 500 2,081.88 -0.29 -0.01%
NASDAQ 4,773.4720 +8.0480 0.17%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs