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Aberdeen Asia-Pacific Income Fu Message Board

  • oilgush oilgush May 7, 2004 1:17 PM Flag

    Am I stupid flipper?

    I value your opinion.
    I put cash in SHY, a 1-3 year treasury ishares a year or so ago. The duration is around 1.7 now. With a 1%+ increase in rates, SHY has lost around 1.7%. The yield is about 1.7%, so I have lost a years worth of yield. Am I stupid and should I continue to keep the cash there? I considered this invesment a low risk place for the cash.

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    • You are certainly NOT stupid. Considering where a lot of people put their money a few years ago you did well. In 1.7 years you know exactly what your return will be.

      Bonds have really been crushed lately and we're probably closer to a SHORT term bottom then top, is my guess. Today was a big spike in bond yields and might be a short term top, just a guess.

      Long term I am bearish on bonds. So my lame advice is buy things with maturity dates then open end stuff like mutual funds unless you want to "trade" the cycle. Buy them and accept the return until maturity. Buy different maturities so you can things maturing often if rates go up, similar to what vickerviscount astutely suggested (called laddering). It is what most major institutions do with their bond portfolio. I�ll tell (bore) with the theory if you want.

      Look at savings bonds too. No broker or banks recommends them because they don't get paid. They're not a bad deal for some money. Go directly to US treasury web site. Lots of different options there.

      Some people do the craziest thing to get extra yield sometimes. Unless your willing to do your own credit work stay with Gov�t�s. Becareful of Mortgage backs though. Stick with FIRM maturies and watch call dates. Treasuries are NON-callable unlike most corporates, just stick with Treasuries, it�s less complicated and they won�t call them the second rates downtick. IMHO, the fees on mutual funds are too high to just �buy and hold� unless you buy a really good junk bond manager. You can usually do the same yourself with not too much work.

      So congrats on your wise purchase versus other things a few years ago!! Just hold them to maturity and don't worry fluctuations in between, IMHO. Set the date on the calendar then to worry.

      Thanks for asking.

    • Holding CASH is probably the best place for short term (less than 3 years). Although most moneymarkets etc, are paying less than 1%, there is NO risk of losing principle. You only risk losing out a bit on inflation, but you have piece of mind. I have long term (20 year) targets, and want income. Lots of money in REITS, Blue-Chip dividends, utilities, etc. . my average payout is about 6% on my portfolio. . .also lots of corporate bonds paying 6 - 9%. . .ladder them out in 10K strips from 5 - 15 years.

      Answer to your question as always is: what are your investment goals. . .my Aunt kept all bonds till maturity, and kept most blue chips in her portfolio for 40 years. . .she died a RICH woman. A note on 20 year corporate bonds. . .if you can get 8% over 20 years, you will go through 3 - 4 interest rate cycles. (also recessions and recoveries) it generally averages out over 20 years, and you DO get your money back. . .

 
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