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Author: rkmacdonald 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 75801  
Subject: Re: Bonds Date: 4/19/2004 10:54 AM
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pauleckler wrote:
I do not agree that bond funds is a good way to begin--especially right now. Interest rates are likely to rise some more. REITs just fell about 20% in the last 4 weeks. Long term rates have skipped upward. Bond fund owners have already taken a hit and will likely take a drubbing before interest rates settle down. So if you are thinking of investing in fixed incomes now, be very careful. Wait if you can. A year or two from now things could be more settled. Meanwhile pick CDs, the bonds themselves, or other similar instruments with fixed maturity dates. They will be safer than bond funds for the forseeable future.

While I agree that a CD or bond ladder is best, I think that bond funds with short maturities should be OK. As interest rates rise, the share price of the short term bond funds will take a small hit initially, but the higher interest rates will compensate with a higher dividend. The ones that will be hit hard by rising rates are the long term corporate(aka 'junk') bond funds. One type of long term fund that may have minimal damage is long term municipal funds.

Russ
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