| Even the best bond fund involves risk, because | | | | moving money between them. For example, if |
| bonds fluctuate in value. When interest rates head | | | | the higher yielding one becomes worth less than |
| north, bonds head south. Here's your best bond | | | | the short-term fund, move money to make them |
| fund investment strategy to earn the higher | | | | equal again. |
| interest income bonds offer while lowering your | | | | With this investment strategy in place you have a |
| risk of significant loss. | | | | built in defense working for you, because you will |
| Our investment strategy involves three different | | | | be buying more shares as bond prices fall in the |
| bond funds and four basic steps. The three are: a | | | | intermediate sector. First, reinvested dividends |
| high quality short-term, an intermediate-term high | | | | (interest) buy more shares as prices drop. |
| quality, and a higher yielding (but not junk) | | | | Second, you will be rebalancing and moving |
| intermediate-term bond fund. | | | | money from the short-term fund to the more |
| The short-term fund is the safest and will pay the | | | | volatile ones as rising interest rates send their |
| lowest dividends or interest. It will fluctuate less in | | | | fund prices down more aggressively. |
| value than the other two as interest rates | | | | You will be buying more and more shares at |
| change. The intermediate bond funds pay more | | | | cheaper prices. This lowers your average cost per |
| interest, but are subject to greater risk and price | | | | share... so that when interest rates level off and |
| fluctuation. As interest rates rise they can lose | | | | head back down your loses have been minimized. |
| significant value; and they should gain in value | | | | And your bond funds should recover sooner, and |
| when rates fall. Long-term bond funds magnify | | | | show a profit before interest rates get back to |
| this effect and are riskier. That's why I exclude | | | | where you started. |
| them from our investment strategy. | | | | The simple investment strategy is to just buy the |
| First, keep your cost of investing low by investing | | | | best bond fund you can find and hold on. The |
| in no-load funds. To lower costs even more go | | | | problems here is that if interest rates go up |
| with the index variety. For example, no-load | | | | significantly and remain at higher levels indefinitely, |
| intermediate term index bond funds. Second, | | | | your bond investment could be under water for |
| invest equal amounts in all three different | | | | years. |
| investments. Third, set them all up so that all | | | | People invest in bonds for the higher income they |
| dividends are automatically reinvested to buy | | | | pay. With interest rates at historical lows, the risk |
| more shares. | | | | of losses due to rising interest rates can outweigh |
| Fourth, rebalance at least yearly so that the value | | | | that advantage. Don't buy bond funds without an |
| of all three remains about equal. You do this by | | | | active investment strategy. |