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URL:  http://boards.fool.com/bond-and-f-i-faqs-part-1-c-25173342.aspx

Subject:  Bond and F-I FAQs: Part 1 C Date:  2/14/2007  2:15 PM
Author:  Lokicious Number:  19764 of 35930


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With all this talk about preserving principal, are there risks to Bond and Fixed-Income Investing?
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• Yes, there are many risks, some of them limited to active bond traders, others (covered here) of broader relevance.

• “Inflation Risk”:
---One of the biggest concerns with” fixed-income” investing is that the return on your investment may be so low your savings will buy less when you need to spend them than when you put the money away. This is because our costs for buying the same items usually increase due to inflation.
---The idea of a fixed income strategy is to preserve the buying power of your savings, not just the original principal.
---A return on your principal less than inflation puts you at risk of not having enough money to buy what you expected to be able to buy.
---One example of this is Passbook savings accounts, which notoriously have failed to keep pace with inflation.

• “Liquidity Risk”:
---When you need money, you need money, and if most of your money is tied up in investments that you can't liquidate quickly, you ar