The Motley Fool Discussion Boards

Previous Page

Investing/Strategies / Bonds & Fixed Income Investments


Subject:  Re: Japan to end interference Date:  4/3/2004  2:38 PM
Author:  splotto Number:  9831 of 36398

Sorry, but my answer would be: not bloody likely.

Think of it this way: you just cashed in bonds that had good yields for a capital gain (I presume). When a bond fund does this, they are locking in gains that essentially substitute for the higher yields they were getting. If they then reinvest in lower yielding bonds with lower interest rate risk, the total return is still going to be greater (if interest rates go up) than if they had sat pat. This is what you just did.

In this low rate environment, you simply are not going to find "safe" yields of 5%, unless you go with some very long corporates (and hw safe are those really?). Your best bet is to ladder, either CDs, treasuries, TIPs or a combination. If you can figure out a ladder with an average of 5 year maturities (you'd need treasuries or TIPs) you can probably get about 3.5%; a little less with a 6 months to 5 year CD ladder. Then roll over to longer maturities as the short maturities come due. If rates go up, you'll catch that any maybe get your 5% over time. But there's nothing safe with 5% now. If you find anything, plase, please, let me know, but believe me, I've looked high and low and have been settling for 4% 5-year CDs as the least of the evils.

If these are taxable funds, then you could start looking at holding individual muni's from your own state. It is certainly a way to maximize your income.


Copyright 1996-2018 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us