Expert: Doug Ingram - 3/7/2006

Question
Doug,
I'm invested in a Ginnie Mae mutual fund but don't completely understand what drives the funds share price. I've noticed the share price at a 3 year low. Would now be the time to dollar cost average with additional investment capital or should I keep those funds in a 4.1% money market fund?

Answer
In my opinion, it's a good time to add a little.
Funds on bonds lose value as interest rates rise and we are near 2-year highs (in rates).
Example:  If the fund is invested in 5% bonds and rates go to 6%, the fund's value is lower because NEW investments could get 6% instead of 5%.
If rates go down, the fact that you own bonds that pay a higher rate causes your portfolio to be worth more.
That's the basics of bonds.
Rates up = prices down (and the reverse).