Including bonds in your portfolio can help provide balance, as bonds carry less risk than stocks. But there are a number of different types of bonds to choose from, including short-term bonds, long-term bonds, Treasury bonds, corporate bonds and municipal bonds.
Short-term bonds are bonds that mature in one to four years. When a bond reaches maturity, that means the bond issuer must pay off the bond, or pay back your principal investment or the bond’s face value.
When you cash in a mature bond, you’ll get back your principal investment along with any interest earned during the bond term. Because a bond stops earning interest after it matures, it’s a good idea to redeem the bond when it reaches maturity.
Learn everything you need to know about short-term bonds, including what returns you can expect with them and how to be sure you’re purchasing a safe bond.
Good question. In some cases, such as determining capital gains taxes on an income-producing investment, more than one year is considered long term.
However, with bonds, the opposite is true. Some long-term bonds can span decades, such as the 30-year Treasury bonds. In comparison, a bond that matures in one to four years is considered short term.
Yes, there are some bonds that mature in even less than a year, such as 90-day U.S. Treasury bonds. These are known as ultra-short-term bonds, or as cash equivalents.
For investors who want to have quick access to their money, ultra-short-term bonds may be a good option. Returns for these bonds are usually higher than money market accounts but lower than conventional short-term bonds.
Shorter terms translate into lower risks for investors. And that usually means lower returns. When everything else is equal, a bond with a longer term to maturity will usually pay a higher interest rate than a shorter-term bond. For example, 30-year U.S. Treasury bonds often pay one or two full percentage points higher than five-year Treasury notes.
That’s because when you buy a bond with a shorter maturity date, your money won’t be tied up as long as with a longer-term bond. With a long-term bond, there is more risk that higher inflation could reduce the value of payments, as well as greater risk that higher overall interest rates could cause the bond’s price to fall.
Because of those additional factors, the returns on bonds aren’t just dependent on the length of time until maturity. Bond returns also are influenced by current interest rates. When interest rates are rising, for instance, short-term bonds usually provide better total returns than their long-term counterparts. When interest rates are falling, longer-term bonds usually provide stronger total returns than short-term bonds.
Most successful investors try to diversify their portfolios to include some high-growth (and higher risk) assets, such as stocks, as well as some safer holdings such as cash or bonds, also known as fixed income investments. Short-term bonds, because they are converted back to cash within a relatively short time frame, can work well for the cash or fixed income portion of your portfolio.
If an investor is looking for a conservative investment that will not expose you to much volatility, short-term bonds may be a good option. Also, if interest rates are rising or expected to rise, short-term bonds are even better.
So how much of a well-balanced portfolio should be in bonds? One rule of thumb is to subtract your age from 110. The answer is the percentage of your portfolio that should be invested in stocks, with the remainder in bonds. So if you’re 35 years old, you’d have 75 percent of your investments in stocks, with 25 percent in bonds.
Keep in mind that while bonds are less volatile than stocks, they are not risk-free. If the current interest rates rise during your bond term, the value of your bonds could decline. And if you purchase corporate or municipal bonds and the bond issuer experiences financial problems, the issuer could default on the interest and the principal.
As with any investment, buying bonds carries risk. However, you can research the quality of the short-term bonds you’re interested in purchasing before making a decision.
Bonds have ratings, or grades that indicate their quality, to help investors determine whether each bond is a wise investment. Various rating agencies such as Moody’s, Standard and Poor’s, Fitch Ratings and DBRS assign ratings to a firm’s bonds. Those ratings are based on the bond issuer’s financial strength, growth potential and ability to repay its obligations.
U.S. government bonds are backed by the faith and credit of the U.S. government, so they offer the most security and least risk—but they typically pay interest rates that are lower than other short-term bonds. For instance, corporate bonds typically pay the highest interest rates, but the interest is fully taxable. Interest on short-term municipal bonds is exempt from federal income taxes, but the interest rate is usually lower than that of corporate bonds.
If you want to purchase short-term U.S. government securities, you can buy them directly from the government by visiting TreasuryDirect.gov. You can also purchase short-term government bonds, corporate bonds and municipal bonds through an investment broker, online or in person.
For most people, the easiest way to invest in short-term bonds is by purchasing bond funds rather than purchasing individual bonds. Bond funds are mutual funds or exchange-traded funds (ETFS) that invest in bonds rather than stocks. (Acorns conservative portfolio contains one of these funds.)
For instance, if you select a mutual fund in the short-term bond category, you purchase shares and instantly own high-quality bond holdings from a variety of issuers, industries and regions. Bond funds are available for purchase through online or in-person brokerage firms, just like purchasing regular mutual funds or stocks.
When you own short-term bonds in a bond fund, you don’t have to worry about cashing in your bonds when they reach maturity. Instead, the fund manager handles that process and reinvests the earnings into more high-rated, short-term bonds, so that investors are constantly invested in short-term bonds. Usually, you can expect a monthly payout of the income earned by the fund.
If you’re interested in adding some stability to your investment portfolio, consider short-term bonds. While they’re not risk-free, they have relatively little volatility and can provide strong returns, especially when interest rates are rising.
What are your investing goals? Click below to learn more RetirementSave money for retirement with our easy IRA investing options,
featuring SEP, Traditional, and Roth plans.
Financial literacy content right in your app. Learn how to grow your money,
investment and savings strategies, and more.
With Acorns Early, you can start investing for the future of your loved ones.
Our UTMA / UGMA investment account for kids features custom
Earn rewards and education for families.
Your money is automatically invested into one of our diversified, ETF portfolios,
built by experts and recommended for you. Plus, easily personalize your
investments with a Bitcoin-linked ETF and a Custom Portfolio option which
allows you to add individual stocks to your portfolio.
This material has been presented for informational and educational purposes only. The views expressed in the articles above are generalized and may not be appropriate for all investors. The information contained in this article should not be construed as, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy or hold, an interest in any security or investment product. There is no guarantee that past performance will recur or result in a positive outcome. Carefully consider your financial situation, including investment objective, time horizon, risk tolerance, and fees prior to making any investment decisions. No level of diversification or asset allocation can ensure profits or guarantee against losses. Article contributors are not affiliated with Acorns Advisers, LLC. and do not provide investment advice to Acorns’ clients. Acorns is not engaged in rendering tax, legal or accounting advice. Please consult a qualified professional for this type of service.
Nancy Mann Jackson is an award-winning journalist who specializes in writing about personal finance, real estate, business and other topics.
More on Investing
Investment products | Not FDIC insured | No bank guarantee | May lose value
Important Disclosures
Paid advertisement. Dwayne Johnson is an investor in Acorns Grow Incorporated, is a director of its affiliate Acorns Labs, is an Acorns customer, and together with his creative agency receives substantial compensation from Acorns and its affiliates to promote Acorns and therefore has a conflict of interest that can be expected to bias his views. Statements are not necessarily representative of the experience or views of other customers and are not guarantees of performance or success. Nothing here should be viewed as an endorsement or testimonial regarding Acorns Advisers LLC's investment advisory services. Acorns is not a bank. Acorns Visa™ debit cards and banking services are issued and provided by Lincoln Savings Bank or nbkc bank, Members FDIC, to Acorns Checking account holders that are U.S. residents over the age of eighteen (18).
Investing involves risk, including loss of principal. Please consider, among other important factors, your investment objectives, risk tolerance and Acorns’ pricing before investing. Investment advisory services offered by Acorns Advisers, LLC (Acorns), an SEC-registered investment advisor. Brokerage services are provided to clients of Acorns by Acorns Securities, LLC, an SEC-registered broker-dealer and member FINRA/SIPC.
1. Round-Ups® investments are transferred from your linked funding source (checking account) to your Acorns Invest account, where the funds are invested into a portfolio of selected ETFs. If you do not maintain an adequate amount of funds in your funding source sufficient to cover your Round-Ups® investment, you could incur overdraft fees with your financial institution. Only purchases made with Round-Up accounts linked to your Acorns account with the feature activated are eligible for the Round- Ups® investment feature. Round-Up investments from your funding source will be processed when your Pending Round-Ups® investments reach or exceed $5.
2. Acorns Checking Real-Time Round-Ups® invests small amounts of money from purchases made using an Acorns Checking account into the client’s Acorns Investment account. Requires both an active Acorns Checking account and an Acorns Investment account in good standing. Real-Time Round-Ups® investments accrue instantly for investment during the next trading window.
3. A properly suggested portfolio recommendation is dependent upon current and accurate financial and risk profiles. Clients who have experienced changes to their goals, financial circumstances, or investment objectives, or who wish to modify their portfolio recommendation, should promptly update their information in the Acorns app or through the website.
4. Acorns Earn provides subscribers access to shop with our partners and earn bonus investments into your Acorns Invest portfolios when purchasing items from the partner brands. Acorns Earn rewards investments are made by Acorns Grow, Incorporated into your Acorns Invest account through a partnership Acorns Grow maintains with each Acorns Earn partner. Acorns may receive compensation from business partners in connection with certain promotions in which Acorns refers clients to such partners for the purchase of non-investment consumer products or services. This type of marketing partnership gives Acorns an incentive to refer clients to business partners instead of to businesses that are not partners of Acorns. This conflict of interest affects the ability of Acorns to provide clients with unbiased, objective promotions concerning the products and services of its business partners. This could mean that the products and/or services of other businesses, that do not compensate Acorns, may be more appropriate for a client than the products and/or services of Acorns business partners. Subscribers are, however, not required to purchase the products and services Acorns promotes. Amount earned and invested through Acorns Earn since inception as of July 1, 2024.
5. Acorns Subscription Fees are assessed based on the plan of services in which you are enrolled. Acorns does not charge transactional fees, commissions or fees based on assets for accounts under $1 million. Acorns may receive compensation from business partners in connection with certain promotions in which Acorns refers clients to such partners for the purchase of non-investment consumer products or services. This type of marketing partnership gives Acorns an incentive to refer clients to business partners instead of to businesses that are not partners of Acorns. This conflict of interest affects the ability of Acorns to provide clients with unbiased, objective promotions concerning the products and services of its business partners. This could mean that the products and/or services of other businesses, that do not compensate Acorns, may be more appropriate for a client than the products and/or services of Acorns business partners. Subscribers are, however, not required to purchase the products and services Acorns promotes.
6. Acorns is not a bank. Acorns Visa™ debit cards and banking services are issued by Lincoln Savings Bank or nbkc bank, members FDIC. Acorns Checking clients are not charged overdraft fees, maintenance fees, or ATM fees for cash withdrawals from in-network ATMs. Please see your Acorns Subscription Center or Account Statements for a description of the fees you pay to Acorns for its services. Any balances you hold with Lincoln Savings Bank or nbkc bank, including but not limited to those balances held in Acorns Checking accounts are added together and are insured up to $250,000 per depositor through Lincoln Savings Bank or nbkc bank, Members FDIC. If you have funds jointly owned, these funds would be separately insured for up to $250,000 for each joint account owner. Lincoln Savings Bank or nbkc bank utilizes a deposit network service, which means that at any given time, all, none, or a portion of the funds in your Acorns Checking accounts may be placed into and held beneficially in your name at other depository institutions which are insured by the Federal Deposit Insurance Corporation (FDIC). For a complete list of other depository institutions where funds may be placed, please visit https://www.cambr.com/bank-list. Balances moved to network banks are eligible for FDIC insurance once the funds arrive at a network bank. To learn more about pass-through deposit insurance applicable to your account, please see the Account Documentation. Additional information on FDIC insurance can be found at https://www.fdic.gov/resources/deposit-insurance/.
7. Early Payday depends on the timing of the submission of the payment file from the payer and fraud prevention restrictions. Funds are generally available on the day the payment file is received, up to 2 days earlier than the scheduled payment date. Timing may vary.
8. The ETFs comprising the portfolios charge fees and expenses that will reduce a client’s return. Investors should consider the investment objectives, risks, charges and expenses of the funds carefully before investing. Investment policies, management fees and other information can be found in the individual ETF’s prospectus. Please read each prospectus carefully before investing.
9. Acorns does not provide access to invest directly in Bitcoin. Bitcoin exposure is provided through the ETF BITO, which invests in Bitcoin futures. This is considered a high-risk investment given the speculative and volatile nature. Investments in Bitcoin ETFs may not be appropriate for all investors and should only be utilized by those who understand and accept those risks. Investors seeking direct exposure to the price of bitcoin should consider a different investment.
10. The ESG (Environmental, social, and governance) investment strategies may limit the types and number of investment opportunities available, as a result, the portfolio may underperform others that do not have an ESG focus. Companies selected for inclusion in the portfolio may not exhibit positive or favorable ESG characteristics at all times and may shift into and out of favor depending on market and economic conditions. Environmental criteria considers how a company performs as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.
11. Invest, an individual investment account which invests in a portfolio of ETFs (exchange traded funds) recommended to clients based on their investment objectives, time horizon, and risk tolerance.
12. Later, an Individual Retirement Account (either Traditional, ROTH or SEP IRA) selected for clients based on their answers to a suitability questionnaire. Please consult your tax advisor with any questions. Existing customers in Acorns Gold or Silver subscription plans can opt into the Acorns Later Match feature and receive either a 3% or 1% IRA match, respectively, on new contributions made to an Acorns Later account. New customers in these subscription plans are automatically eligible for the Later Match feature at the applicable 3% and 1% match rate. All Later funds for both new and existing customers must be held in an Acorns Later account for at least four years to keep the earned IRA match and all or a portion of IRA Match may be subject to recapture by Acorns if customer downgrades to a Subscription Plan with a lower monthly fee.
For informational purposes only. This is solely intended to provide notification of an available product or service. This is not a recommendation to buy, sell, hold, or roll over any asset, adopt an investment strategy, or use a particular account type. This information does not consider the specific investment objectives, tax and financial conditions or particular needs of any specific person. Investors should discuss their specific situation with their financial professional.
13. Early, an UTMA/UGMA investment account managed by an adult custodian until the minor beneficiary comes of age, at which point they assume control of the account. Money in a custodial account is the property of the minor.
14. Custom Portfolios are non-discretionary investment advisory accounts, managed by the customer. Custom Portfolios are not available as a stand alone account and clients must have an Acorns Invest account. Custom portfolios are not instant trading. Clients wanting more control over order placement and execution may need to consider alternative investment platforms before adding a Custom portfolio account.
15. The Acorns Gold GoHenry Benefit is available only to Acorns subscribers who subscribe to the Acorns Gold Plan and is for the monthly GoHenry Child or Family Plan Membership Fee, subject to these Waiver Terms. You will remain responsible for any other fees that you owe under the GoHenry Cardholder Terms and Conditions that are not included in the monthly GoHenry Child or Family Plan Membership Fee, as applicable.
16. Kids aged 6-18. GoHenry Inc. The GoHenry Card is issued by Community Federal Savings Bank, member FDIC , pursuant to license by Mastercard International. Cardholder Terms and limits apply.
17. It is not possible to invest directly in an index. Past performance is no guarantee of future results.
18. Acorns reserves the right to restrict or revoke any and all offers at any time.
19. Compounding is the process in which an asset’s earning from either capital gains or interest are reinvested to generate additional earnings over time. It does not ensure positive performance, nor does it protect against loss. Acorns clients may not experience compound returns and investment results will vary based on market volatility and fluctuating prices.
20. Diversification and asset allocation do not guarantee a profit, nor do they eliminate the risk of loss of principal.
21. App rating references the combined all-time star rating received in Google Play and Apple App Store. App Store rating as of 5/30/24.
22. ‘Save and Invest’ refers to a client’s ability to utilize the Acorns Real-Time Round-Ups® investment feature to seamlessly invest small amounts of money from purchases using an Acorns investment account.
23. The information contained on this website should not considered an offer, solicitation of an offer or advice to buy or sell any security or investment product. The information should not be construed as tax or legal advice. Please consult your tax advisor with any questions.
24. Comparisons are based on the national average Annual Percentage Yields (APY) published in the FDIC National Rates and Rate Caps as of October 16, 2023.
25. Comparisons are based on the national average Annual Percentage Yields (APY) published in the FDIC National Rates and Rate Caps as of November 13, 2023. As of November 13, 2023, Mighty Oak Checking Annual Percentage Yield (APY) is 3.00% and Emergency Fund APY is 5.00%. APY is variable and subject to change at our discretion, without prior notice. No minimum opening deposit or minimum balance required. Acorns is not a bank. Banking services provided by and Mighty Oak Debit Cards issued and provided by nbkc bank, Member FDIC, to Acorns Checking account holders that are U.S. residents over the age of eighteen (18).
26. On August 21, 2024, Acorns changed the names of its Subscription Plans from "Personal," "Personal Plus," and "Premium" to "Bronze," "Silver," and "Gold." No other changes were made to the Subscription Plans at that time.
27. Over $22 billion invested since inception as of 6/26/2024.
28. Amount invested from Round-Ups alone since inception as of July 31, 2024.
Acorns, Round-Ups® investments, Real-Time Round-Ups® investments, Invest the Change and the Acorns logo are registered trademarks of Acorns Grow Incorporated. All product and company names are trademarks™ or registered® trademarks of their respective holders. Use of them does not imply any affiliation with or endorsement by them.
