I am thinking of switching my bond funds to close end bond funds. Since they use leverage, so far my studies have shown they beat regular bond funds by about 1.5% a year annualized. I will take discounts to NAV into account when buying them.This will be in addition to buying preferred stocks. The only downside is they are more volatile. I am thinking of keeping some spending money in short term govt. bond funds, so I don’t have to sell at the bottom, if we have a crash.Any thoughts on this strategy?
My closed end bond fund is BlackRock Municipal Income Trust II (BLE)NYSE. Currently pays 4.69%. No complaints. Just quietly does its thing. Exempt from federal income taxes.Leveraged closed end funds borrow at short term interest rates and buy long term bonds. Hence, they do better in normal times from the slope of the yield curve. Inverted curve reduces their potential for a while.
Thanks. That was exactly my thought, so I am glad I got confirmation of it. We do need to be willing to accept temporary losses, when the discounts widen, but if we have some very safe bond investments, like short term govt. bond funds, or money market funds to pay expenses with, we should not have to sell them when they are getting hit hard.
Best Of |
Favorites & Replies |
Start a New Board |
My Fool |