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Author: DrTarr Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35400  
Subject: Re: "Long Bond" - buying and rolling Date: 2/12/2006 9:36 PM
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As has already been pointed out - This is a smoke and mirrors approach to investing. Yes, if you had bought 25 year - zero coupon instruments at that time and rolled over to a new instrument each year your return would have been phenominal. But this is using the best period in time to present the case.

If you had bought Microsoft at the same time (OK a couple of years later when they went public) the intial adjusted cost would have been $0.09 per share. It is at $26.69 today, That's some where in the neighborhood of 33% return - each year. Or to put it in their terms.

Our hypothetical [MSFT] buyer would have turned $1 into $297

Now, given the information you have been given, you can easily see there is a time and a place for buying and rolling bonds. It can be incorporated into a portfolio and given a certain allocation. You can certainly purchase bonds on Treasury Direct or you can go to the secondary market. Even Yahoo has a bond screener and then directs you to a bond desk. Remember, you will be selling these in the secondary market so always watch the "bid/ask" spread cause the middle-women love to skim off a good portion.

Another avenue which may work out is a bond fund - this depends on the amount of time you expect to hold the fund and the rate of turnover to adjust the income stream from "unrealized" to actual dividends. (Please note a 1% drop will not result in the drastic 30% increase mentioned by Wendy - but you may get about half that for a 30 year duration) These can be purchased through many of the discount brokers - ie Ameritrade.

I would suggest you look back through these posts on this board and find some of the Bonds FAQ's that have been created - Thanks to the diligent efforts of Loki and others. This is a good place to gather some knowledge on the topics of bonds / FI and should make some light bulbs go on. After that feel free to come ask more questions.

While we will typically digress to other things - deflation destroys some types of wealth, usually in the mix we answer the OP quetions.

DrTarr
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