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Author: Mark0Young Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35400  
Subject: Re: Bonds going up or down ? Date: 6/10/2004 3:44 PM
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I would like to at least break even at $10,000

Over the years I have read messages like that but it is an emotional response, not a financially sound one.

Your fund is costing you 1.48%/yr (annual expense ratio, 1.00% of that is just the 12b-1 fee), so with a fund yielding only 3.93% (trailing twelve months), a lot more could be realized by reducing the expenses.

Contrast that against, say, the Vanguard Total Bond Market Fund, which costs only 0.22%/yr (annual expense ratio) and has a yield of 4.43% (trailing twelve months).

So, if the funds continue this coming year like they did the past year, you would break even faster in VBMFX than you would by staying in OIMCX. Also, by getting out of OIMCX now, you would have a small capital loss that you might be able to use to reduce your income taxes.

The above is comparing somewhat different funds and their behavior may differ in the future as interest rates rise--different sectors of bonds may experience different rate increases and that could affect the funds differently because they have somewhat differing portfolios, but the message is the same: it is better to move your money where it best meets your investment plan than it is to "break even" in OIMCX first.

Depending on how fast bond rates rise (and thus the value of existing bonds decline), it is possible that other instruments might be better, e.g., one person suggested CDs. Another possibility is savings bonds, which aren't subject to capital losses.

I personally have a chunk of my money in savings bonds (mostly with the intent of using it as the less liquid part of my emergency fund) and a chunk in the Vanguard Total Bond Market Fund (as part of my long-term asset allocation plan, so short-term losses are considered possible and not a serious cause of concern for my investment plan).
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