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Fidelity Strategies for Fixed Income Investors: Evaluating a Short-Duration Strategy

With the Federal Funds target rate currently at a very low level, investors need to understand the range of short duration choices available from Fidelity. Let us help you put together a mix of income-producing investments that can help in a low or rising rate period.

Learn more about investing in a low rate or volatile bond market.

Fidelity strategies to help shorten duration

One approach to managing interest–rate risk is to shorten the duration of your fixed income portfolio using bank products, bonds and mutual funds that typically pay less than longer–term bonds and riskier investments, but mature more quickly. This allows you or your fund manager to reinvest into higher–paying securities sooner.

Fidelity® Cash Management Account – Offers FDIC protection and daily liquidity.

Fidelity money market funds – Offer daily liquidity and have a weighted average maturity (WAM) of 60 days or less.

For a longer investment horizon

Certificates of deposit (CDs) – FDIC–insured with maturities of 3 months and up. Fidelity offers both new issue and secondary CDs.

Fidelity Conservative Income Bond Funds – Choose between taxable and municipal funds. For those with an investing time frame of at least 6-12 months. Maximum weighted average maturity (WAM) is normally a year or less.

Fidelity Short-Term Bond Fund – Maintains a weighted average maturity (WAM) of 3 years or less.

Fidelity Limited Term Bond Funds – Fidelity currently offers four Limited Term Bond funds—two taxable, two municipal—that aim to provide a high level of income and capital preservation to investors who have an investment time frame of 2 to 5 years.

Fidelity Defined Maturity Funds – Invest in municipal securities whose interest is exempt from federal income tax. Securities owned by the funds mature at or around a specified maturity date.

U.S. Treasury Securities – Choose between auction/new issues and secondary market opportunities with near-term maturities.

Government Agency Securities – Original or secondary issues from Government Sponsored Enterprises such as Fannie Mae, Freddie Mac and the Federal Home Loan Banks.

Additional short duration Fidelity mutual fund choices – including new municipal, taxable, and high yield options.

An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.
In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible. Foreign securities can be more volatile than U.S. markets due to increased risks of adverse issuer, political, regulatory, market or economic developments. Changes in government regulation, interest rates and economic downturns can have a significant effect on issuers in the financial services sector, including the price of their securities or their ability to meet their payment obligations. Prepayment of principal prior to a security's maturity can cause greater price volatility if interest rates change.
Defined Maturity Funds are not designed for investors seeking a stable net value asset (NAV) or guaranteed income.
As each defined maturity fund approaches its liquidation date, the fund's securities will mature and the fund may reinvest the proceeds in money market securities with lower yields than the securities previously held by the fund. In addition, the amount of the fund's income distributions will vary over time and the breakdown of returns between fund distributions and liquidation proceeds will not be predictable at the time of your investment resulting in a gain or loss for tax purposes.
For purposes of FDIC insurance coverage limits, all depository assets of the account holder at the institution that issued the CD will generally count toward the applicable aggregate limit for each applicable category of account. FDIC insurance does not cover market losses, including those resulting in loss of principal. For details on FDIC insurance limits, see www.fdic.gov. Redeeming a brokered CD prior to maturity is subject to market conditions and risks, including loss of principal. Some of Fidelity's inventory of CDs available in the secondary market may not be FDIC insured. CDs with step-down and/or call provisions may be less favorable than traditional CDs without these features. The FDIC insurance covers up to $250,000 per institution per category of account, or up to $250,000 in qualifying retirement accounts. Note that FDIC insurance only covers the principal amount of the CD and any accrued interest. In some instances, CD's may be purchased on the secondary market at a price which reflects a premium to their principal value. This premium is ineligible for FDIC insurance.
It is important to note that unlike U.S. Treasury securities, Government Agency securities are not backed by the full faith and credit of the U.S. Government. Certain Government Agencies are going through a period of business model review by Congress which may lead to higher volatility than they have experienced in the past.
Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information.  Read it carefully.

Weighted Average Maturity (WAM)

This is a weighted average of all the maturities of the securities held in a fund. WAM can be used as a measure of sensitivity to interest rate changes and markets changes. Generally, the longer the maturity, the greater the sensitivity to such changes. WAM is based on the dollar-weighted average length of time until principal payments must be paid. Depending on the types of securities held in a fund, certain maturity shortening devices (e.g., demand features, interest rate resets, and call options) may be taken into account when calculating the WAM.