Each bond is issued with a specific
maturity date,
or time when your principal will be repaid and the investment ends. The time between the date of issue and the maturity date is the bond's
term.
When the term is a year or less, the bond
is described as a short-term issue. Short-term U.S. Treasury bonds are called bills, and some very short corporate debt securities are called
commercial paper.
Bonds with terms of two to ten years are described as intermediate-term bonds, and those with terms of 20 or 30 years or more are long-term bonds.One specific term-related approach you may
want to consider is buying bonds that mature at a time when you expect to need your investment principal, such as when a child will enroll in college. You won't have to worry if the price fluctuates in the period, and you can anticipate a cash infusion when you need it.
Time is (sometimes) money
In most environments, the longer the term the more the issuer must pay in interest to attract investors. But that's not always the case, since short-term rates can rise or fall quickly in response to changes in the economy or the political situation. If it's possible to earn a higher rate on short-term or intermediate-term bonds, there's less reason to tie up your money for the long term.
Alexandra Lebenthal, President and Chief
Executive Officer of
Alexandra &
James, Inc.
If you know you're going to need your money in one or two years, or if you are hedging your bets on what's going to happen to the interest rate, I'd buy short-term bonds that mature in one or two years. That way, you're not subjecting your liquid assets to the vagaries of the market.
When the term is a year or less, the bond
is described as a short-term issue. Short-term U.S. Treasury bonds are called bills, and some very short corporate debt securities are called
Alexandra Lebenthal, President and Chief