Best Short-Term Bond Funds for the Long Term

These funds can provide income-hungry investors with a higher yield than money market funds.

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MassMutual Premier Short-Duration Bond (MSTDX). This fund holds a mix of U.S. government debt, corporate bonds, mortgage-backed securities, and a sliver of foreign corporate debt. It also has large cash stake of more than 30 percent. The fund yields 3 percent and has returned an annualized 5 percent over the past decade. Its annual fees are 0.56 percent.

Delaware Limited-Term Diversified Income (DTRIX). This is another well-diversified fund. Its largest allocation is in U.S. corporate bonds, but it also has substantial weightings to U.S. government debt, mortgage-backed securities, and foreign holdings, which make up a little more than 10 percent of total assets. The fund yields 3 percent and has returned an annualized 5 percent over the past decade. Its annual fees are 0.84 percent.

USAA Short-Term Bond (USSBX). The fund's portfolio leans heavily toward corporate debt and mortgage-backed securities. Management has been known to take on a rather large amount of credit risk; the fund got a boost from its junk-bond holdings in 2009's rally. Over the past 10 years, the fund, which yields 3 percent, has returned an annualized 4 percent. Its annual fees are 0.72 percent.

Vanguard Short-Term Investment-Grade (VFSTX). As this fund's name suggests, its holdings are made up mainly of investment-grade corporate bonds. Compared with its peers, the fund tends to be lighter on treasuries, which means it takes on more credit risk as opposed to interest-rate risk. Currently, it has almost 20 percent of its total assets invested in foreign corporate debt. The fund, which yields 3 percent, has returned an annualized 5 percent over the past 10 years. At 0.24 percent, the fund's fees are the lowest among the 10 listed here.

Homestead Short-Term Bond (HOSBX). Outside of treasuries, this fund holds a wide range of asset classes, including corporate debt, mortgage-backed securities, other asset-backed securities, and a small weighting (10 percent) in municipal bonds. About 20 percent of its assets are tucked away in cash. The fund, which yields 5 percent, has returned an annualized 5 percent over the last 10 years. Its annual fees are 0.80 percent.

T. Rowe Short-Term Bond (PRWBX). In his 15-plus year reign, manager Ted Wiese has never lost money in this fund over a 12-month period, according to Morningstar. Currently, the portfolio is heavy on corporate debt and mortgage-backed securities, and about 15 percent of its total assets are invested in foreign corporate debt. Over the past 10 years, the fund, which yields 3 percent, has returned an annualized 5 percent. Its annual fees are 0.55 percent.

Virtus Multi-Sector Short-Term Bond (NARAX). At times, this fund will take big risks that can result in big payoffs or heavy loses. Those bets caused it to lose 14 percent in 2008, landing it near the bottom of its category. The fund rebounded strongly in 2009 with a 30 percent gain. As the fund's name suggests, management has the option to invest in 12 different sectors, including junk bonds and bank loans. It currently has large holdings in corporate bonds, mortgage-backed securities, and foreign bonds. The fund, which yields 5 percent, has returned an annualized 6 percent over the past 10 years. Its annual fees are 1.12 percent.