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Investing When Your Time Horizon Is Short

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Money market fund yields now average greater than 4 percent, for giant funds sampled by Peter G. Crane, the president of Crane Data in Westborough, Mass. Major firms like Vanguard, Fidelity, Schwab and T. Rowe Price offer such funds. Their yields have rapidly soared from near zero over the past 12 months, following the lead of the Federal Reserve, they usually are highly prone to rise closer to five percent if the Fed continues to boost rates of interest, because it has indicated it intends to do.

Some high-yield savings accounts — which carry government guarantees, unlike the higher-yielding money market funds — are actually offering rates of interest above 3 percent, based on Bankrate.com. Bank C.D.s of a duration of 1 12 months or more are starting to offer yields above 4 percent. Treasury notes with a maturity of two years are offering yields over 4 percent, and Treasury inflation, or I bonds, are paying 6.89 percent.

Briefly, originally of 2022, short-term holdings offered almost nothing appealing. Now, there’s a broad range of options with relatively handsome yields, though none look particularly good when inflation remains to be running at a 6.5 percent annual rate, as the newest numbers show.

When you possibly can afford to take a position for many years to return, the arguments for each stocks and bonds are compelling.

For the 25 years through December, the S&P 500 returned 7.64 percent annualized, including dividends, based on data compiled by Howard Silverblatt, senior index analyst for S&P Dow Jones Indices. That signifies that in nine or 10 years, your investment would have doubled, over and once more, outstripping the rate of inflation in most years.

Bonds haven’t produced returns of that caliber over the long haul, but they’ve been quite good, nonetheless — with returns of greater than 6 percent annualized for diversified bond portfolios, based on Vanguard data.

But these gaudy long-term returns contain inside them some horrible years, and 2022 was considered one of them. For those who needed to convert stocks and bonds to money, you most likely incurred big losses.

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