Strategy Intermediate: How to Invest for Short-Term Goals

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1.
Certificates of deposit are not insured.
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False. Certificates of deposit are insured.
2.
Whats the biggest benefit to using a certificate of deposit (CD) to fund a short-term goal?
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The return on a CD is guaranteed. A CDs return is predictable. Buy a 12-month CD promising X% rate and thats exactly what youll get.
3.
Whats the difference between an ultrashort-bond fund and a short-term municipal (muni) bond fund?
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The short-term municipal bond fund owns longer-term securities than the ultrashort-bond fund. Short-term muni bond funds buy longer-term securities than ultrashort-bond funds do. Muni funds own bonds whose interest is exempt from federal income taxes; ultrashort-bond funds buy taxable bonds.
4.
Whats the biggest risk with bank-loan funds?
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Borrowers defaulting. Because they invest in floating-rate loans, bank-loan funds have very little interest-rate risk.
5.
How do ultrashort-bond funds limit risk?
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They all invest in short-term securities, typically with durations of six months or less. Not all ultrashort-bond funds stick exclusively with high-quality securities. And they are not insured.