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Author: nnn12345 Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35387  
Subject: Re: Advice for Mom Date: 5/4/2002 5:51 PM
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Carchofa--Regarding selling the bonds--and your question of buying them back later if interest rates go up: First, you do not know whether the long term rates will be equal, higher, or lower than now at that time in the future. Second, you will incur a significant transaction cost to actually sell the bonds right now. Thirdly, the bonds are probably yielding a greater amount than is currently available given the current interest rate environment, but this is just a guess and will directly factor into the bond value anyway. Fourth, your Mom needs income to live off now, not so much the potential for long term gains in 10 to 20 years.

FWIW, long term interest rates do not always move in lock step with short term rates, so that even if indeed the gvmt moves the short rate up in the next few months which is probably more likely than not, the long term rates may not go up. Or even if the long term rates do move up over the near and mid long term future, they may not move up fast enough to off set the income lost while waiting to catch the higher yield. But the laddered CD portfolio concept tries to catch the rising rates and give current yield as well.

Also, if you do decide to sell a bond portfolio what will you reinvest into????

IMHO, your Mom's bond portfolio is a very reasonable part of her asset allocation given her age and income needs.

You seem to be trying to accomplish many goals with your Mom's portfolio, such as trying to trade and market time bonds, long term growth invest in Stocks, etc. But IMHO fundamentally you need to focus directly on what your 69 year old Mom appears to need most at this time, which is income to live off.
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