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You are correct. This is Rollover IRA Money and it is the portion on my AA that is not in Stocks. I'll start RMD's in 2 years, pulling from a true Cash Bucket. I am just looking for a safe harbor for about 40% of this Rollover.....the "Sleep Well" portion of my fortune !!
if it is rmd money , i would not keep more than the current years money in it and i would keep it in a very short term bond fund for liquidity . something like fidelity conservative bond fund .
that nav barely moves if at all it is so short in duration . it is a step up from the new gov't money markets but has no fixed 1 dollar value . it can float a few cents . it actually hasn't moved in months from 10.04 .
Not a bond expert, but she could always buy the bonds and hold to maturity. That way market fluctuation is irrelevant and she is still paid interest. At maturity, she gets face value.
Talk to your FIDO guy about laddering bonds - you might be better off that way if this is relatively mid/long-term money.
the individual bond never increases in rate as rates rise but it takes no decrease in principal (it actually does if you look at purchasing power since getting back your 1k 30 years from now as anexample buys 500 bucks of stuff }
the bond fund has a nav that drops with a rise in rates but it has an increasing interest rate too .
buying an intermediate term bond fund with a duration that is the same as the individual bond maturity will come out pretty close .
as i showed in my example , buying a 5 year treasury at 5% or buying a intermediate term bond fund with a duration of 5 years and 5% interest will give you your 5% in both cases with no nav drop by the 5th year . .
corporate bonds can have credit ratings influence things too , both good and bad . generally the bond funds are pretty good at gaining value playing those games so odds are the bond fund may do better .
I get what you're saying, but to hold a fund for 18 months and, even with income reinvested, have the investment be worth less is a bit disheartening. As rates rise, bonds lose value, so - for psychological reasons, if nothing else - she could buy the bonds, have the interest income credited at regular intervals, and know her principal will be there at maturity - and 'see' income meanwhile. The dollar result may be the same over a long period of time v. a fund, but angst might be tempered a bit. I remember Ron Insana years ago on CNBC saying he never bought a bond fund, always bought the bonds. In an environment of rising interest rates, this might provide more peace of mind. That said, transaction costs are also a factor.
selling a bond fund in 18 months that is years from it's average duration would be no different then selling a bond early ..
as you are getting interest on that individual bond , if you wanted to sell it early ,wouldn't you sell it a loss ? of course you would have to.
anytime you sell either one early you can lose money . the individual bond has to be held to maturity in order not to lose . a bond fund has to be held until at least its duration in years .
the op's fund has a duration of 5.85 years . anything less is like selling an individual bond early . it is all priced to market . but hold them to either maturity or the duration value and the increased interest over time on the bond fund erases the loss .
I'm not "selling" the Bond Fund early. I was using the small investment to track the performance over time. And the results were puzzling. Their published SEC Yield was 2.5% or so....and I saw no such yield. My CD Ladder is paying better that the negative return that I'm seeing with FSITX.
I see other folks touting a 2 - 4% return on their Bond Allocation and I'm wondering how.
The Duration of FSITX seemed fine at the time, but maybe I should look at shorter duration ??
Very clear. So, bond funds are definitely a longer-term commitment if one wants to achieve the "peace of mind" factor.
no not at all . what ever maturity you choose on a bond you can find a fund with a simiar duration .
as an example i-share shy is a short term fund , duaration 2 years
i shares IEF is an intermediate term fund duration about 8 years
i-shares tlt is a long term fund , duration is 18 years .
I'm not "selling" the Bond Fund early. I was using the small investment to track the performance over time. And the results were puzzling. Their published SEC Yield was 2.5% or so....and I saw no such yield. My CD Ladder is paying better that the negative return that I'm seeing with FSITX.
I see other folks touting a 2 - 4% return on their Bond Allocation and I'm wondering how.
The Duration of FSITX seemed fine at the time, but maybe I should look at shorter duration ??
so in effect you took what would be like a 5 year bond and sold it in 18 months in rising rates . in either case both bond and fund would suffer similar losses . hold both 5 years and you would get your 2.50% interest .
the bond would have no loss in value but it would never see a penny more in interest .
the bond fund will fall in value as rates rise but as new bonds are bought you will get more and more interest offsetting the fall in nav . it would take 5 years in this case to offest the drop .
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