Investing in short term debt is an excellent way to enjoy current cash flow
while reducing interest rate risk. When interest rates rise, the value of fixed
income securities like bonds goes down. By keeping maturity levels low,
investors can reduce the risk of principal loss without giving up the cash yield
they need.Mutual Fund Investing:Mutual funds are an excellent way to invest in
short term debt instruments like company notes, government bonds and short term
company loans.
Investing in a mutual fund of short term debt instruments
provides excellent diversification, and that can mean less risk than purchasing
individual issues directly from corporate entities, banks and brokers. To get
started with mutual fund investing, just follow these simple steps:1. Contact
several
TPLO
Plate large mutual fund families and get a list of the bond funds they
offer. Review the average maturity for each fund.2. Choose the short term bond
fund that best meets your needs. These funds will typically be listed as short
term funds, but it is still important to look at the average maturity of the
bonds the fund holds. This information will be listed in the prospectus. 3.
Review the prospectus for information on the fees and expenses charged by the
funds. Fees and charges are particularly important in a bond fund, since high
expenses could significantly reduce the return on your investment.4. Choose the
fund you want to invest in, then complete the application for that fund. Be sure
to include your name, your address and your Social Security number. Depending on
the fund family, you might also be asked to provide information about your job
and your income level.5. Mail the completed application, along with your
deposit, to the address listed on the form.
Be careful when mailing the
application, since many mutual funds use a separate address for overnight
mail.Direct Investing:Of course mutual funds are not the only way to invest in
short term debt, and it is important to consider your direct investing options
as well. Investing in Treasury Bills and Treasury Notes directly from the U.S.
government can also be an effective, and cost-effective, way to profit from the
market in short term debt instruments.To get started with direct short term debt
investing just use these simple steps:1. Log on to the U.S. Treasury Direct
website, click the "Individuals" link to open an account and buy short term debt
directly from the U.S. government. T-Bills can be purchased in a number of
different maturities.2. Choose the "Open a new account" option to create each
new Treasury Direct account and link that account to your checking or savings
account.
Once the account has been established, you will be able to fund your
purchases of Treasury Bills and Notes with the money from your bank account.3.
Contact your bank as well to ask if they sell Treasury Bills and other short
term debt instruments. Many banks and credit unions have investment branches
that offer these types of services to account holders. Many investors prefer to
work with their local banks when buying short term debt, rather than making the
transaction over the Internet.
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