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Reply #3: Do you have a financal background? [View All]

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Travis_0004 Donating Member (417 posts) Send PM | Profile | Ignore Sun Aug-07-11 10:00 PM
Response to Original message
3. Do you have a financal background?
Edited on Sun Aug-07-11 10:03 PM by Travis_0004
Just wondering.

I'm sure you know that bond prices go down as interest rates go up. If what everybody else is saying is true, then interest rates may go up very soon. Plus, when we recover from the recession, interest rates will probably rise then as well. Short term bonds have a lower duration, so it isn't as big of a deal with short term bonds. Also, if buy a bond and plan to hold it to maturity, then duration and yield to maturity isn't a concern, since you know the details when you buy the bond. The only problem with holding a long term bond to maturity is there is some opportunity cost in the fact that you might be forced to hold onto a bond instead of selling it and taking a hit on the YTM.

I think short term bonds are fine, but long term bonds are the last place I would want to be. I know bond funds work a bit different, but I would not touch any mid or long term bond funds. I think a much better idea would be buying short term bonds and holding them to maturity.

Now, if this post was made in late 2008, when the recession was coming, I would agree with you that bonds are a great idea, since interest rates would have to come down. Put a lot of money in 30 year zero coupon bonds, and you would have been a happy investor back in 2008. Buying long term bonds now, not a great (or even good) idea.
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