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 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.
Bruno is a web entrepreneur and social media marketing consultant working for the Norwegian dog community website Hundefeber.no. He also owns a lovely Pomeranian and a Mops dog.
Orignal From: Investing 101 - Use These Simple Tips to Invest in Short Term Debt Instruments
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