UnThreaded | Threaded | Whole Thread (7) | Ignore Thread Prev | Next
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 35400  
Subject: Re: Advice on DCAing into Bonds Date: 4/21/2009 1:42 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 0
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
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (7) | Ignore Thread Prev | Next

Announcements

Foolanthropy 2014!
By working with young, first-time moms, Nurse-Family Partnership is able to truly change lives – for generations to come.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Post of the Day:
Macro Economics

The Story Behind the Story
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement