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Author: WendyBG Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35392  
Subject: Re: Advice on DCAing into Bonds Date: 4/21/2009 1:42 PM
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Remember that buying individual bonds is quite different than buying a bond fund.

Please read the FAQs.

<...basically I must choose a Vanguard bond fund....I think that interest rates will rise over the next 8 years, so a one-time purchase of a long-term fund right now might be unwise, but if I use a DCA approach................>

If interest rates will rise over the next 8 years, the Net Asset Value (NAV) of the fund will drop.

When the NAV drops, you will lose capital. Unlike individual bonds, a bond fund does not mature, so you won't get your principal back if interest rates rise.

The higher yield of the bond fund (as interest rates rise) will only make up for the loss of NAV when you have held the shares for the duration of the fund. The duration can be seen in the prospectus (online).

Changes (such as a drop) in NAV are proportional to the duration. A long term bond fund will drop much more than a short term bond fund when yields rise.

If you truly believe that interest rates will rise, you believe that long term bond funds' NAV will fall.

Wendy
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