It looks like you indented so_far = new
too much. Try this:
if guess in word:
print("\nYes!", guess, "is in the word!")
# Create a new variable (so_far) to contain the guess
new = ""
i = 0
for i in range(len(word)):
if guess == word[i]:
new += guess
else:
new += so_far[i]
so_far = new # unindented this