Expert: Doug Ingram - 10/2/2002

Question
Hello,

I have significant stock mutual fund investments, and now have some discretionary money which I would like to invest in bond funds.  I am looking for a balance between total return potential and safety, with a mild bias towards safety over return.  At age 62, I will not be dependent on income from the bond investments, and will not need to tap into them for at least 5 years.  Also, I expect interest rates to gradually increase over the next number of years.

Given this background, your subjective rank ordering of the following types of funds in terms of their suitability for my needs would be appreciated: 1 being top choice, and 4 being last choice.  Also, any comments about the funds
I mention (or options thereto) would be welcome.  Thank You!

Vanguard GNMA  -  Vanguard Inflation Protected Bond Fund  -  Vanguard Short Term Bond Index  -   Fidelity Intermediate Term Govt. Income  

Answer
If you expect interest rates to increase, the short-term index should be best.  Maybe even an Adjustable Rate MBS fund.  

Trouble with the longer funds and the adjustable rate - is they could lose value from time to time.

As always, a little more risk to gain a little reward.
A mixture is a good hedge.

I don't rate funds.  I would visit www.morningstar.com to view the ratings.  Stocks wont go down forever.  A good move would be to stay in short bonds and look for big selloffs to inch into stocks.  Have you heard the stat that since 1941, if you had invested $10,000 in stocks, you would now have about $827,000?
If you invested from Nov to May over that period you gain about $810,000.  From May to October just $17,000!
The key, just use bond funds from May to October and then switch to stocks from October to May 1!

A least that's a plan.  Good luck.

Doug