| > So here is my question: What is your strategy for when interest rates
> start to go back up again? Do I pull all or most of my money out
> quickly, like when the prime goes up 1% in two months, or do I ride it
> out? What indicators do you look for to make this decision?
Why did you invest in bonds? Fixed income? Capital appreciation?
Better returns than money market funds?
Are they long, intermediate or short term?
What alternative investments are you considering?
The basic question you must ask is if the total return of the bond
fund -- i.e. yield +/- capital gain/loss -- is better or worse
than the total return of the alternative. Both adjusted for risk
and taxes.
OPINIONS:
If you were after capital appreciation, you've already got it
and may want to sell now.
If you were after fixed income, hold "forever".
Short term bonds are less interest sensitive than long term,
so, if you're seeking better returns than money funds, move to
short term bonds and keep an anxious eye on interest rates.�
Your hypothetical 1% increase is a reasonable signal on which
to sell, provided that you think it is the start of a trend.
If you have confidence that some other investment will do
better, sell your bonds and buy the alternative. (Pardon me
for stating the obvious.)
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
�A portion of my porfolio is doing just this with SCUDDER SHORT
TERM BOND FUND.
|
| re. .1
Thanks for some good advice.
Since I am in my early 30s and I'm trying to grow my investments over
the long-haul, my investments in bonds is a small part of my overall
portfolio (20%). However, I did break it up by making an investment in
long-term, intermediate term, short-term and an international bond fund.
My reasoning on doing this was to get the learning experience of better
understanding how these bond fund behave.
My question was more directed at what people define as "a trend" as far
as interest rates go and how you use this to make decisions about bond
funds.
If I follow what you are saying, if the interest rates start to go up,
then I need to be most concerned about my Long-term Bond Fund, and
shift that money elsewhere, right? Would you consider a 1% jump "a
trend?"
I'm trying to understand what people believe are the best indicators of
a true trend.
Thanks for your advice.
Curt
|
| as in .1, the only thing that matters is what your personal investment
goals are. If you are concerned about "market trends" for any reason
other than curiosity, you are asking for trouble (or at least,
sleepless nights). Peter Lynch comments in Time Magazine (and I
paraphrase), "If you spend 14 minutes a year thinking about the market,
you have spent 12 minutes too many." Historically, the only time
people have accurately defined a trend was after it was over.
I, too, will re-state the obvious.
Set your investment goals.
Invest in those vehicles (common stock, bonds, mutual funds, etc) that
historically meet your goals.
Diversify, diversify, diversify.
Understanding that all investment vehicles have cycles; do not sell out
when they sag and do not buy more just because they are doing real
great. That is, buy low, sell high.
Most important, constantly review the performances of your vehicles as
to how well they meet your goals. If they don't, sell. If they do,
hold.
If your goals change, re-assess your investments.
As for the impact that interest rates will have on total ROI of Bonds,
Stocks, etc;.... Each morning I watch CBN (Business news). They have a
different "industry respected" prognosticator on each day offering
opinions and predictions. During the course of a month's reports, you
will hear contrary opinions on the same subject - even from the same
guru. You will also, if you have a good memory, note that the
prognosticators' crystal balls are cloudy, at best. Last week the
consensus was that if the Fed even hinted at raising rates to counter
inflation, the DOW would dive and Bonds would suffer as well. Monday,
the Fed hinted at the probable need to increase rates if inflation
warnings continue; the DOW jumped up and Bonds followed.
But then, I could be all wet.
As always, For What It's Worth.....
Dave
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