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Subject:  Worst case for bond funds Date:  5/21/2013  10:42 AM
Author:  EsM30 Number:  34953 of 35576

I don't have much experience with fixed income investments, so forgive my ignorance.

My parents recently moved a large amount of their savings from CDs and savings accounts to bond funds because they were tired of their low interest rates at the suggestion of a planner at their bank. They tend to do EVERYTHING at the wrong time because they are scared and think the next asset class will be safe. They lost a lot in stocks in the dot com era. Now they will never buy stocks again. They lost a lot in REITs after the real estate bubble (since real estate is safe, not like those stocks!) And now, they are just now deciding they can't stand their sub 1% interest and need to move into a bond fund because those are safe and have been doing so well.

I have no special knowledge of when our low interest rate environment will become an extended rising interest rate environment, but it seems possible that it could happen eventually.

I am certain my parents are not willing to risk their principal for a higher current income. (They do not care when I explain real versus nominal losses, they are very emotional about money.) What is the worst case for a bond fund holder with no plans to reinvest any inco