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Pastimes : The Justa and Lars Honors Bob Brinker Investment Club Thread -- Ignore unavailable to you. Want to Upgrade?

To: Boca_PETE who wrote (5310)	6/29/2010 5:38:52 PM
From: marc ultra	2 Recommendations Respond to of 10065

<if you wished to lower your interest rate risk, What alternative investment vehicle(s) in the current climate would you be looking at? Ladder of Treasuries - Ladder of directly bought quality ST Inv Grade Corporate Bonds - Other vehicles ???? One problem is if the economy stays OK if not robust, and the high degree of fear goes away as it always does, then I think Treasuries and higher quality stuff will be the most subject to interest rate risk. The lower quality stuff gets helped by an OK economy from credit spreads coming in a bit. I was worried more about interest rate risk than credit risk when we came into the year. I run a mostly fixed income portfolio for my elderly mother and I put a lot of money in floating rate note funds and some in the convertible bond fund at Fidelity as they both have essentially zero duration. With floating rate note funds as interest rates go up your yield goes up but unlike a regular bond fund that then loses principal the NAV stays basically stable. Now while I use floating rate note funds I'm not particularly recommending then because they do have issues which is why Bob apparently doesn't like them. For one they tend to be expensive. Also since they represent short term loans to corporations they can get clobbered in another 2008 like scenario if there's concern about the loans being repaid so it's not the highest credit quality. The main one I used was FFRHX at Fidelity which is one of the lower cost ones at about 77 basis points. Unlike some others they don't really use leverage. I would guess this option may not sound that appealing to you. Then you have the way Bob is getting around the interest rate risk which is to recommend a ladder of FDIC insured CDs. Other than these things it will be very tough right now to get a good balance of yield and safety from both interest rate and credit risk. If you're willing to just hold quality individual corporate bonds as you say then you will get your coupon and if they take a hit it doesn't matter that much if you're never going to sell them. The other problem though with a lot of these things is you're locking in a really low interest rate. I'll mention something else that I recommended to an aunt of mine who seemed mainly worried about safety. I told her to just go buy a 6 month or one year CD so the money would be safe and if interest rates start moving up as I expect then you can re-evaluate the situation when the CD comes due. With Treasury and Treasury-like securities in what seems like somewhat of a bubble there's no easy solution.