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Strategies & Market Trends : Dividend investing for retirement
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To: stock bull who wrote (4317)4/3/2010 11:27:17 PM
From: Kip S  Read Replies (2) of 34328
 
Stock Bull,

A couple points/suggestions. First off, although I agree that while the Fed will likely start tightening in the second half of the year (or so), long-term bond rates are not directly related to Fed actions and have been rising of late. For example, the ten-year Treasury (benchmark) rate was less than 2% 15 months ago. Currently it is nearly 3.9%, so those investors have a sizable loss. The relatively benign jobs report on Friday drove yields up, with longer term Treasuries taking a loss of more than 1 point (1%).So you should take action sooner and not wait for the Fed to raise its target rate.

The traditional approach is to retreat to a money market fund, but with yields at about zero, they are not very appealing. You can find an insured money market account that is yielding as much as 1.3%--not much, but no loss and access to your money anytime.

Another choice is to move into a short term bond fund--one with a duration in the range of around 2 years or even less (That would translate into an average maturity of around 2-2&1/2 years. There you can probably get a yield of about 2.5%, but you are subject to some capital loss. Here, a 1% increase in rates would cause about a 2% capital loss. That is a lot better than the 10-15% loss you would experience in a long-term bond fund, though. You have to evaluate the tradeoff for yourself. Is getting another point or two in current yield worth the risk of some capital loss?

Hope this help a bit.
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