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Strategies & Market Trends : A.I.M Users Group Bulletin Board -- Ignore unavailable to you. Want to Upgrade?

To: rgammon who wrote (13457)	11/5/2000 9:18:02 AM
From: OldAIMGuy	Respond to of 18928

Thanks RG, Good points. Yes, bond funds have good liquidity and if you keep the average maturity term of the bond fund relatively short, you can gain some extra yield and still have something that has minimum loss character when you need to sell it to do an AIM directed buy. I do this with my IRA. I keep about 2/3 of the "cash reserve" in a short term bond fund and the remainder in their regular money market fund. During most markets, I rarely use anything but the money market fund. However, when the deeper discounts have come along there's always the ST bond fund to tap. This has usually been at a "break even" but there was at least once when it was at a slight loss. The slight loss was acceptable because I was buying deeply discounted "stock fund" shares with the proceeds. The capital gain made on the stock fund more than compensated for the minor loss in the ST bond fund. The longer the bond fund's average term of maturity, the greater the exposure to cap. gain or loss. Long bond funds tend to have the greatest face value swings. Shorter term bond funds have relatively small price changes. Long bond funds have the highest yields usually with short term bond funds having rates closest to money market funds. (it's a risk/reward thing again; long bond funds - highest rewards, but highest risk of capital and visa versa) The benefit even with short term bond funds is usually anywhere from a quarter of a point to as much as a point in interest generated. I guess I average maybe a half point better interest. That equates to about a 10% improvement in yield. Not bad. Mr. Lichello talks about this in the very last chapter of his book (third revision). He thought it could be important to retired people, but I think it's probably applicable to almost any AIM user. Best regards, Tom