Barron's on Ultra-Short Alternatives
Barron's published "The Best Alternatives to Ultrashort Bond Funds," which says, "There was a time when earning 1% from a short-term bond was acceptable. Five years ago, the average one-year Treasury bill yielded less than 0.2% and many money-market funds paid essentially nothing. Ultrashort-term bond funds, which took on a little more risk, but paid a bit more, were one of the few viable options for conservative investors seeking income from their cash. No longer. Today, after interest rate increases, the one-year Treasury bill yields 2.4%, and there's a question whether ultrashort funds, which buy high-quality bonds with durations of less than one year, can keep up. The average ultrashort fund has only a 1.2% five-year annualized return, according to Morningstar.... If you need an ultrasafe emergency stash and want to earn some income from it, you're better off owning a bank CD or Treasury bills directly." Barron's adds, "One step up in risk are money-market funds, which aren't federally protected, but are so conservative that they have lost money only twice in Wall Street history. Vanguard Prime Money Market (VMMXX), one of the lowest-fee funds, has a current yield of 2.46%. It's more liquid and convenient than owning one-year CDs, which charge early withdrawal penalties.... But ultrashort bond funds are neither as convenient as money markets nor as safe as Treasury bills or CDs, so they should deliver higher returns. As of Feb. 28, the largest ultrashort mutual fund, Pimco Short-Term (PSHAX) at $19 billion, also had a 2.46% 30-day SEC yield."
