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I am looking for fixed-income investments or investment strategy that offer quarterly liquidity and attractive annual effective yields and low risk (i.e. holding the security for a a quarter should generate a positive return) and some spread above treasuries. I'm open to investment strategies as well (i.e. low-risk option premium generation, short-duration high quality munis, or structured notes). By structured notes, I mean for example perhaps taking the present value of the principal on-hand and purchasing a zero-coupon bond that matures at the amount of principal, and taking the balance of cash and purchasing a call option on some index.

Prefer investments via an exchange-traded security (ETF, bond fund, etc.) rather than investing via bank money market, CDs, or savings accounts.

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    you could look into arb'ing the difference between principal and interest strips on US Treasuries. I don't think there is a ton there, but since quarterly treasuries are effectively zero it is probably has a spread on them.
    – Pablitorun
    Mar 7, 2012 at 15:57
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    This question is close to asking for investment advice that is off topic.
    – user4127
    Mar 7, 2012 at 17:22

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The Vanguard Short-Term Bond Index mutual fund (VBIRX) might fit your need. Apart from 2008, it has only had one single quarter of negative returns, and has always had positive annual returns.

If you're looking for an ETF, you might consider iShares Barclays 1-3 Year Credit Bond (CSJ).

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    The Vanguard Short-Term Bond Index Fund also has an ETF version, symbol BSV.
    – mgkrebbs
    Mar 8, 2012 at 5:10
  • For reference, that "fund invests about 30% of assets in corporate bonds and 70% in U.S. government bonds within that maturity range. A key risk of the fund is the fact that changes in interest rates can eventually lead to a decrease in income for the fund. Investors with a short-term savings goal who are willing to accept some price movement may wish to consider this fund."
    – user296
    Mar 8, 2012 at 20:37
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Short-term to intermediate-term corporate bond funds are available. The bond fund vehicle helps manage the credit risk, while the short terms help manage inflation and interest rate risk. Corporate bond funds will have fewer Treasuries bonds than a general-purpose short-term bond fund: it sounds like you're interested in things further out along the risk curve than a 0.48% return on a 5-year bond, and thus don't care for the Treasuries.

Corporate bonds are generally safer than stocks because, in bankruptcy, all your bondholders have to be paid in full before any equity-holders get a penny. Stocks are much more volatile, since they're essentially worth the value of their profits after paying all their debt, taxes, and other expenses.

As far as stocks are concerned, they're not very good for the short term at all. One of the stabler stock funds would be something like the Vanguard Equity Income Fund, and it cautions:

This fund is designed to provide investors with an above-average level of current income while offering exposure to the stock market. Since the fund typically invests in companies that are dedicated to consistently paying dividends, it may have a higher yield than other Vanguard stock mutual funds. The fund’s emphasis on slower-growing, higher-yielding companies can also mean that its total return may not be as strong in a significant bull market. This income-focused fund may be appropriate for investors who have a long-term investment goal and a tolerance for stock market volatility.

Even the large-cap stable companies can have their value fall dramatically in the short term. Look at its price chart; 2008 was brutal. Avoid stocks if you need to spend your money within a couple of years.

Whatever you choose, read the prospectus to understand the risks.

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