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|Subject: Re: Worst case for bond funds||Date: 5/21/2013 10:59 AM|
|Author: Wradical||Number: 34954 of 36086|
What is the worst case for a bond fund holder with no plans to reinvest any income received?
Two bad things could happen:
1. Interest rates go up, and share prices drop significantly, so you realize a loss when a time comes you have to sell. Note that if you continue to hold, at least you will start to see rising dividends.
2. Interest rates don't go up, and the return from dividends goes down as bonds in the portfolio are turned over.
What happened to someone who bought into bond funds at the worst time in the 1970s, for instance?
Depends on how long they held. Bond prices would have gone down, but the current yield would have gone up, then down again.
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