Ultra-Short Bond Funds

During the 2008 financial crisis, the average ultra-short bond fund lost 7.9% for the year; the Charles Schwab YieldPlus fund lost 35% (note: a lawsuit forced Schwab to pay a $119 million fine to settle SEC civil charges). There are four broad types of ultra-short bond fund risks: [1] interest rate changes, [2] credit risks and the relative movement of yields among different classes of bonds, [3] the risk of uncertainty about payment timing, and [4] fund holdings (enhance returns) that may contain other types of risk (i.e., leveraging, borrowing costs, etc.).