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Author: foobar73 Big red star, 1000 posts Feste Award Nominee! Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35392  
Subject: Re: Treasuries 101 Date: 8/18/2002 12:49 PM
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is this still a smart thing to do...now...or should I wait to include fixed income investments until later? Any crystal balls out there?

No crystal balls, but some basic facts:

- Up until the 50's, interest rates were never as high as they were today. Anyone living in the 1800's through 1940's might have been skeptical that one might earn even 6% in intermediate risk-free bonds; they probably would have laughed at you if you suggested double-digit yields. History is on the side of low interest rates.

- Without inflation, there will be little pressure for rates to rise. If the economy continues to stagnate, and more people find themselves jobless, consumer spending will continue to decline, and inflation should not be able to take hold.

- The role of diversification is to protect you from being wrong, by forcing you to invest in a manner which you do not agree with. Even if you perceive a peak in the bond market, it's important to still maintain some degree of bond holdings, in case your perception does not turn out to become reality. Betting everything on an one-year economic turnaround is not diversification.

- Whether or not a 15% bond allocation, or the use of the iShares intermediate Treasury ETF is appropriate, depends entirely on your own financial profile. Perhaps a mix of the intermediate and short ETFs might have been a better choice, in terms of managing the risk of rising interest rates.

- If you have the option to do so, buying individual Treasuries (or perhaps CDs, as these sometimes offer better rates) is usually preferable to Treasury funds: there are no fund management expenses, the markets are very liquid, with few risks for the beginning investor, and one can choose to hold to maturity, ensuring at least there will be no loss.
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