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Author: TTRoberts 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 74759  
Subject: Re: Thinking about retirement...plans Date: 1/31/2004 5:48 PM
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JLC , you clarified:

<< Many people think bonds/bond funds are lower risks because it is not as obvious that you can lose your principle. >>

For the most part, I agree. Many, if not most, people tend to not understand how bond funds work and that this is some risk to principle (certainly more so than just buying the bonds themselves).

<< The important point to remember, bonds are only as good as the company the writes them. Companies go bankrupt or default on payments. Nothing is guranteed. Therefore, since bonds can lose value/principle, IMHO, there is as much risk as equities. >>

Well, I think I understand what you're getting at and the logic being used. You might want to write or express it in a different way??? For example – how about . . . . There's as much risk of losing SOME principle in bond funds as there is in losing SOME principle in equity funds . . . ??? But as far as an amount that's at risk, they're not “as much risk.”

<< I'm sure Enron and WorldCom bonds looked good at one point. Underlying company went down, so did the value of the bonds. A bond fund itself can lose per share value just with an increase in interst rate despite investing in the best bonds available. So no protection there either. >>

That's a good point. But as Mark0Young pointed out, when a company has gone under, those that are creditors have a claim against assets where shareholders only get what's left . . . if anything. That's a big difference is “risk.” Creditors may not get all that's owed to them, as you suggest, but are more likely than shareholders to get something.

<< If one is looking to protect principle of look for a steady income, one should be in CDs, T-bills, or money market fund. That was more the point. >>

Well, you and I probably agree to some extent with regard to bond funds. I don't care for bond funds for income purposes. Owning the bonds themselves makes much more sense for this purpose. Bond funds on the other hand can be helpful in reducing volatility in a portfolio of mutual fund investments.
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