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Key Takeaways

• Short-term bond funds are investments whose market values can fluctuate, so they do not offer the same principal stability as cash held in a bank deposit account.
• Shorter maturities and lower duration can reduce interest-rate sensitivity, but they do not eliminate market risk or guarantee returns.
• Money market funds and ultra-short bond funds follow different investment approaches and rules, even though both may be used for relatively conservative cash management.
• Credit risk, interest-rate changes, and the types of securities held can affect the value and performance of short-term bond investments.
• Investors should match their choice to their need for liquidity, principal stability, income, and willingness to accept potential losses.