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Author: 2old4bs Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35400  
Subject: Re: About FAQ draft Date: 1/17/2006 12:26 PM
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Hi Loki,

In my view, the best way to proceed would be for me to suggest changes and have you review them. I have copied each of the parts into Word documents. This enables me to highlight deletions in square bracketed red font, and place additions/substitutions in blue font. After I've completed each part, I'd like to email the Word document to you for review. If you OK, I can just delete the red font entries while leaving the blue.

Is this OK with you? If not, could you suggest a better way to do it via the boards?

I have started on Part 1. Some of the changes are stylistic--wherein I've tried to reduce extraneous words. I include the part I've worked on below, just so you can see what it looks like without the highlighting. Perhaps I could also italicize the suggested deletions. I think it's a little difficult to actually see the changes like this--let me know what you think:

################################################################################
Bonds and “Fixed” Income Investing: Introduction
################################################################################

What Are Bonds?

----Bonds are “debt securities” (IOUs) issued by governments, agencies, or corporations to institutional or individual investors from whom they borrow money.
----Bonds pay periodic dividends (usually semi-annually) until they mature or are “called.”
----Bonds may be held until their maturity-date (unless they get “called” or liquidated during bankruptcy), at which point they pay back the “face-value” of the bond.
----Bonds may also be traded on the bond market, i.e., sold prior to maturity, typically for more or less than face value.
----A good source for terminology and “bond basics” is bondsonline:
http://www.bondsonline.com/Educated_Investor_Center/Bond_Basics.php
http://www.bondsonline.com/Educated_Investor_Center/Types_of_Bonds.php
http://www.bondsonline.com/Educated_Investor_Center/Buying_Selling_and_Trading.php
----The “learn more” section from investinginbonds.com has similar information
http://www.investinginbonds.com/
----Also see Vanguard's glossary
http://flagship5.vanguard.com/VGApp/hnw/content/Glossary/IndexPages/GlossaryIndexPageNumContent.jsp
----For comments and recommendations about books on investing in bonds, see this thread
http://boards.fool.com/Message.asp?mid=23489486&sort=whole

What Is “Fixed Income Investing”?

----“Fixed-Income” investing[, really] is a misnomer[,]. It's actually [is] a[n] financial strategy in which you put money into investment or savings instruments with the intent of having at least as much buying power (after inflation) from the[y] money when you need to use it as the money had when you put it away, while minimizing the risk[s] of losing the principal. “Principal preserving” is [probably] a better term. Income (interest, dividends) is often not, in fact, at a fixed rate.
----Except for money you need to have available for very short-term purposes, you should be able to find “principal preserving” financial instruments that will at least keep pace with inflation, with 2-3% above inflation (pre-tax) being a reasonable goal, based on historical “fixed-income” returns.
----Typical “fixed-income” options, such as US Savings Bonds, Money Market[s] accounts, CDs (Certificates of Deposit), and traditional Savings accounts, are cashed in, not traded, thus avoiding the risk of selling at a loss, although Savings Bonds and CDs are usually subject to a penalty if cashed in early.
----Tradable bonds may serve as “fixed-income” options if held until[l] maturity, not sold before maturity [hand].
----A starting point for a “fixed-income” investing strategy is to find the option with a true fixed rate (a CD, a US Treasury Bond or Note) that is currently paying the highest interest (“dividend,” “yield”) for the length of time in which you are interested. Then, use this as the basis against which to compare options with variable rates or options that depend on total returns (income plus or minus principal), even though the comparisons will inevitably involve estimates and guesses.
[.]
How About Bond Funds?

----Bond funds are mutual funds that invest in bonds—individuals buy shares in these funds then receive dividends, based on the dividends paid by the bonds held within [by] the fund.
----When individuals redeem (sell) their bond fund shares, they will get back more, less, or the same as they paid for the shares, depending on the prices (“Net Asset Value,” a.k.a. “NAV”) at which the shares were bought and sold.
----Unlike stock mutual funds, which, except during bear markets, have over time seen NAVs steadily increase, bond fund NAVs consistently fluctuate up and down, depending on prevailing interest rates, which affect the tradable value of the bonds held within [by] the fund.
----Many people assume investing in bond funds is a [“fixed-income” (]principal preserving[)] strategy, but it is not, as your principal in the form of NAV is subject to fluctuation. [Although o]Over time however your [funds shares may even out or your] total return on a fund (dividends plus or minus the value of sold fund shares) may make bond funds a good alternative to true principal preserving choices.
*******************************************************

2old
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