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Just up-graded my status from unemployed to retired. So far, so good. I need to re-allocate assets and want a large percentage of fixed incomes. The appeal of bonds is par value at maturity. The appeal of funds is I may be lazy, but a bond fund acts like a stock fund and there is no point at which the fund matures. Is this a meaningful difference? Any thoughts appreciated.
BJ
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One thing I would keep in mind is what you plan to do with the bond fund. If you plan to keep it "forever" and just reap the income, then I would think a fund, especially a broad based index fund, would be just fine. However, if you plan to sell it off before too long or trade it, then you may want to be wary of buying a bond fund when interest rates are at all time lows. You may end up selling at a much lower NAV than you bought.

-drip
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maturity. The appeal of funds is I may be lazy, but a bond fund acts like a stock fund and there is no point at which the fund matures. Is this a meaningful difference? Any thoughts appreciated.
BJ

Absolutely a difference. If bond yields go up (they can hardly go down!), bond funds will drop. I hold no bond funds. Buy bonds or CD's and hold to maturity.

Horace
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If you have more than $25K to invest for the long term, a laddered maturity bond portfolio is the best way to go. A 10 yr ladder with a bond maturing every 2 years (which you then replace with another 10 yr bond at the then current interest rates) gives good yield, and averages out the dips. So you get steady income that changes gradually with interest rates over time.

As you point out, holding to maturity means you are less concerned with short term changes in interest rates.

In fact the classical way to retire off investments in the Foolish plan is to keep most of your funds in equities, but then have 5 yrs of living expenses in a bond ladder. You live off the interest from the bond ladder and if the market crashes off the bond that matures. (You wait to sell equities and replace the matured bond until the market recovers). This protects you from being forced to sell equities in a down market to cover your living costs. Of course if you have pension, annuity, Social Security payments and other sources of income, the details change.

As you are supposed to have a minimum of 25 yrs of expenses in investments to retire, this implies a max of 20% of your assets in bonds, and if your assets exceeds the 25 yr minimum, the number can be far lower.

But most of us are happy with 25 to 40% of funds in bonds. (I have 75% in bonds at the moment.) Of course, if your sources of funds are inflation protected and you are conservative, much higher bond levels are possible.
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If you have more than $25K to invest for the long term, a laddered maturity bond portfolio is the best way to go.

Agreed. And I would avoid buying bonds of large companies with strong unions. If such a company gets into trouble, the gov't might take what you are owed for your bonds and give it to the union. They did that to GM bondholders, giving a big portion of what they were legitimately entitled to to the UAW. The precedent has been set.

--fleg
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Paul - can you point me to a good primer on constructing a bond ladder? Right now the "bond" portion of our portfolio is in a bond fund (VWIUX). I'm also working on a 2 year CD ladder, but might roll that into the bond ladder.

joe
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For starters on a bond ladder, check out message 9595 on the Bond Board.

http://boards.fool.com/Message.asp?mid=20460566

The Bond board FAQ are also a wealth of information, and you will find experienced bond investors there who can answer most of your questions.

See also the Bond article on Investing Wiki--

http://wiki.fool.com/Bond
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You hit the nail on the head.

Bonds mature. Bond funds don't.

Once you own the bond, it stays right there in your portfolio, paying its interest. NO management fees.

If you buy a callable bond at a discount, and they call it, isn't that nice?

The problem is right now it is very difficult to find any sort of quality bond at a discount. You might want to set up a ladder of CD's and as they mature look for good quality bonds at a decent price.

As interest rates rise, which they will, the net asset value of your bond fund would drop, and you may well never get that back.

Best wishes, Chris
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FYI, in response to our discussion of bond ladders, I have penned an article for Investing Wiki. It is here--

http://wiki.fool.com/Ladder
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In the WSJ:

Don't Trip in Your Search for Higher Bond Yields

http://online.wsj.com/article/SB125330719871723837.html#mod=...

At Vanguard Group, more than $51 billion has cascaded into bond funds this year. "It's been like Niagara Falls," said Vanguard's head of fixed-income investing, Robert Auwaerter. Industrywide, investors sank over $40 billion into bond funds in August, an all-time high for a single month, and are on pace to break that record again in September.

That mightn't be troubling if investors were merely taking baby steps out of money-market funds, whose three-month average maturities minimize the danger of losses if interest rates rise. Remember, rising rates mean falling bond prices.

Last month, investors put twice as much money into intermediate-term and junk-bond funds as into short-term bond portfolios. As a result, they have exposed themselves to much greater risk from rising rates or falling credit quality. When interest rates go up, as in 1994, investors in longer-term bonds can get slaughtered.
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Because interest rates are so low, individual bonds may be priced higher than their par value. That means that if you buy now and hold to maturity, you'll get back less than you paid for them. Be careful out there.

--fleg
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