- Home
- Investing
- ETFs
Money market funds are a safe option for the cash in your portfolio, but ultra-short and short-term bond ETFs also deserve consideration. Here are seven reasons why.
By
Brad Collins
published
9 January 2026
in Features
When you purchase through links on our site, we may earn an affiliate commission. Here’s how it works.
Share Share by:- Copy link
- X
With the Federal Reserve resuming rate cuts, many investors and advisers might be reassessing their short-term liquidity strategies.
Thanks to their stable value, minimal duration and attractive yields, money market funds have become enormously popular in recent years, amassing a record high of $7.5 trillion in assets as of July, according to the SEC.
But money market funds are just one option for managing short-term liquidity needs. Ultra-short and short-term bond ETFs are gaining traction among advisers; ultra-short ETFs are the fastest-growing fixed income ETF category over the past year.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
CLICK FOR FREE ISSUE
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Sign upUltra-short and short-term ETFs can help investors more precisely manage their liquidity needs.
Here are seven reasons why you should consider them in your portfolio.
1. Lower reinvestment risk than money markets funds
In a falling rate environment, money market funds will reflect declining yields faster.
Because of their slightly longer duration, ultra- and short-term bond ETFs may have lower reinvestment risk — the risk that your options once the bond matures will have lower yields than are available today.
About Adviser Intel
The author of this article is a participant in Kiplinger's Adviser Intel program, a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.
2. Higher interest rate risk, a positive in the right environment
Bond funds have higher interest rate risk than money market funds, but this can benefit investors when rates fall, boosting bond prices.
It's important for investors and advisers to carefully weigh how anticipated changes in monetary policy and yield curves can affect the relative attractiveness of short-term bond ETFs vs money market funds.
Some professionals see ultra-short bond ETFs as alternatives to money market funds for immediate needs given their comparable duration profile, while short-term bond ETFs complement money market funds for longer-term savings goals. Consider each in the perspective of an overall portfolio.
3. Historically higher risk-adjusted returns
Ultra-short and short-term bonds have typically provided higher returns than bank accounts, money market funds and CDs because of their slightly longer maturities, though with modestly higher volatility.
This trend may persist with a normalizing yield curve.
ETFs also provide on-demand liquidity during market hours, comparable to money market funds and bank accounts, and avoid the lock-up periods of CDs.
4. Tax efficiencies
ETFs can be more tax-efficient than traditional mutual funds because in-kind transfers help minimize capital gains distributions.
However, overall tax treatment depends on the securities held, not just the ETF structure.
For example, money market funds do not distribute capital gains, and tax-exempt income depends on the underlying assets.
5. Lower costs
ETFs generally have lower average expense ratios than their mutual fund peers, but are subject to premium/discount volatility and bid-ask spreads. Investing with a large, reputable ETF issuer can help reduce total cost of ownership.
6. More customization and flexibility
There are ETFs for just about any duration, credit quality or sector. A portfolio of ETFs can be tailored to meet a client's goals, risk profile, tax strategies and tiered spending needs.
7. Accessibility
Unlike bank products or mutual funds, ETFs are available to anyone with a brokerage account with no investment minimums.
Looking for expert tips to grow and preserve your wealth? Sign up for Adviser Intel, our free, twice-weekly newsletter.
The right tools for the right time horizon
Cash and liquidity management is a function of risk tolerance, time horizon and spending needs. Having a framework in place can ensure clients have the optimal amount of cash in their portfolio.
Immediate spending needs within three months or less. Assets needed this soon should be in money market funds or possibly ultra-short ETFs invested in Treasury bills or other securities with maturities of 90 days or less.
Upcoming expenses up to a year. Ultra-short ETFs with an average duration of less than one year might be more appropriate for this time horizon.
Planned expenses from one to two years. Short-term bond ETFs become more viable for this time horizon, depending on the client's financial situation and comfort level.
Investors and advisers should evaluate liquidity tools not just by yield, but by strategic fit within the broader portfolio. Money market funds offer safety for immediate needs, while short-term ETFs provide dynamic solutions for those seeking higher returns and greater flexibility as rates decline and market conditions evolve.
For many clients, the optimal approach will involve blending both vehicles, ensuring they have the right liquidity resources over different time horizons.
Related Content
- What Are Bonds and How Do They Work?
- Best Bond Funds to Buy
- How to Buy Treasury Bonds
- Money Market Account or Money Market Fund? How to Choose
- The 5% Diversification Rule: Your Secret Weapon for Smarter Investing
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
TOPICS Adviser Intel Get Kiplinger Today newsletter — freeContact me with news and offers from other Future brandsReceive email from us on behalf of our trusted partners or sponsorsBy submitting your information you agree to the Terms & Conditions and Privacy Policy and are aged 16 or over.
Brad CollinsSocial Links NavigationDirector, Fixed Income Product Manager, Investment Management Group, VanguardBrad Collins is a Fixed Income Product Manager, responsible for developing and supporting Vanguard's robust fixed income product ecosystem. In this role, Brad interfaces with investment teams and sales to deliver a superior client product experience. Prior to joining the Fixed Income Product team in January 2025, Brad spent four years as a senior fixed income trader on Vanguard's Active Credit team.
Latest-
How to Make the Most of These 2 Tax Breaks ASAP
Taxpayers can strategically use these temporary tax opportunities in particular to lock in long-term tax savings. Here's how.
-
What to Watch for When Refinancing Your Home Mortgage
A smart refinance can save you thousands, but only if you know how to avoid costly pitfalls, calculate true savings and choose the right loan for your goals.
-
The 10 Best Splurge Destinations for Retirees in 2026
Come for the luxury vacation. Retire for the lifestyle (if the vacay goes well). What better way to test a location for retiring abroad?
-
How to Make the Most of These 2 Tax Breaks ASAP (They Have Expiration Dates)
Taxpayers can strategically use these temporary tax opportunities in particular to lock in long-term tax savings. Here's how.
-
What Changed on January 1: Check Out These Opportunities Created by the New Tax Law
A deep dive into the One Big Beautiful Bill Act (OBBBA) reveals key opportunities in 2026 and beyond.
-
Beat the Money Blues With This Easy Financial Check-In to Get 2026 Off to a Good Start
As 2026 takes off, half of Americans are worried about the cost of everyday goods. A simple budget can help you beat the money blues and reach long-term goals.
-
Do Self-Storage REITs Deserve Space in Your Portfolio? It's a Yes From This Investment Adviser
Self-storage is an overlooked area of the real estate market, even though demand is strong. Investors can get in on the action through a REIT.
-
Dow Hits a Record High After December Jobs Report: Stock Market Today
The S&P 500 also closed the week at its highest level on record, thanks to strong gains for Intel and Vistra.
-
The December Jobs Report Is Out. Here's What It Means for the Next Fed Meeting
The December jobs report signaled a sluggish labor market, but it's not weak enough for the Fed to cut rates later this month.
-
4 Simple Money Targets to Aim for in 2026 (And How to Hit Them), From a Financial Planner
While January is the perfect time to strengthen your financial well-being, you're more likely to succeed if you set realistic goals and work with a partner.
-
Estate Planning Isn't Just for the Ultra-Wealthy
If you've acquired assets over time, even just a home and some savings, you have an estate. That means you need a plan for that estate for your beneficiaries.
