Strategy Intermediate: How to Invest for Short-Term Goals

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1.
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.
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.
For many, a disadvantage of certificates of deposit is that _______.
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You must hold them for a set period. There are early-withdrawal penalties if you take your money out early.
4.
What do bank-loan funds invest in?
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Bank loans taken on by corporations. The funds choose floating-rate bank loans.
5.
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.