Can someone educate me on bond funds?

[bimetalaupt]

Aug 2, 2011 16:58:58 GMT -5 CCL said:

I know when stock mutual funds pay out dividends/distributions the price drops by that same amount, but how do bond funds work? If they pay a out a distribution does the value (price) drop by the same amount or does the price stay the same and you get the payout, too, like a savings or money market account?

Cheese Cake Lady,
I am going to change the question on bonds to buying T-Bonds at the open under non-competitive bids.. You will get the bond with no Fees for the life of the bonds..Average bond fund have fees of about 0.7 to 1%..so over 30 years the is 30% of your investing money in cost..Need a better discipline

Like the t-30 .. Pays about $40.00/thousand..You can use it at the 90% level for margins like need cash and it looks great on your books..So take it from Louie ( on his paper he is know as Ludwig the XXXII...) Cheap is better as you never get back your cost!!

Just a thought,
Bi Metal Au Pt

[bimetalaupt]

Aug 2, 2011 18:03:55 GMT -5 CCL said:

So are you saying T-Bonds are a better way to go? This fund is through a 401k so I think the fees are likely just "hidden." I don't think we can move it into T-Bonds. I can't come up with anything that seems like a good place to move it to.

Thanks for all of your help.

+
Cheese Cake Lady,
I have been very aggressive in investing for some 50+ years. You pay taxes for interest earned so with T-Bonds in hand you can spend more money with paid interest that you use for better investing then 401k..Frank the I and I have aggrieved each other over this for years.. But you have to do your homework.. Know the law..This works if your banks is lending money!! Sorry.. The last time I used them I made 5%.. Got one great deal prime less

Just a thought,
Bi metal Au Pt

[Deleted]

Cheesecake lady,

I applaud you for starting your homework. DH and I did some major rebalancing in February with a shift into bonds. If I can find my old thread I'll post it. But in a nutshell you should know that in a bond fund bonds are constantly being bought and sold to maintain its status; e.g. the "Intermediate" status would indicate a 3-5 year range. Therefore I'm not that concerned about rising rates unless they go up very fast because over time the older lower paying bonds will be sold and newer, higher interest rate bonds will be purchased with the proceeds.

"For this reason, bond funds are riskier than directly owning the bonds since the owner of a bond may choose if and when to sell."

I think Tough has this statement backward. One invests in a bond fund vs a single bond to diversify your bond holdings and to spread the risk that a bond holder will default or redeem early. Some can, some can't; it depends on the terms with each individual bond.

Given the above, I'm not sure that there's really a "good" or "bad" time to invest in bonds. You buy them for income and to give yourself some investment risk diversification. E.g. you can look at a relatively scary investment event like the last 10 days and watch the money flow into "safe" investments thus driving rates lower rather than higher. And given that the Feds just announced they keep rates very low through 2013 I'm guessing we're not going to see higher rates for a while.

You need invest according to your schedule and not try to time the market. And do make sure you and DH are looking at your portfolios holistically so that you aren't duplicating investments especially if someone is holding significant assets in Target Funds. They will start loading up on bonds the closer one reaches the "Target Date".

Good luck!

[Deleted]

Tough,

Then we can agree to disagree. It makes no sense to me that a single bond worth $50,000 is safer than 100 bonds in a comparably credit rated bond fund. To me the principle is the same as owning a single stock vs an index fund holding the SP 500.

Cheesecake lady here's link to my question; you'll find the same types of arguments you're encountering:
notmsnmoney.proboards.com/index.cgi?board=startinvesting&action=display&thread=2665

BTW how old are you and about how many years until retirement?