Mutual Funds/bond funds


I'm in my 60's and a good chunk of my mutual funds portfolio is in bond funds (Fidelity New Markets and Fidelity Strategic Income funds). I read that it's not a matter of if, but when interest rates go up, bond funds will decline in value. Will I need to get out of those funds?  Thanks

Dear Lee:

First, may I suggest that you look at dividend-paying stocks. They are a relatively safe investment--compared to stocks in general--and they will boost the income you receive. Vanguard has a good fund--Wellesley Income.

As for Fidelity New Markets, if interest rates rise quickly in the US, New Markets--investing as it does in foreign bonds--will be relatively unscathed.

As for Strategic Income, it invests in high-yield bonds, which should also take only a relatively minor hit. "Junk" bonds tend to behave like stocks.

In general, to keep any of your bond funds from being badly hurt by quickly rising interest rates, stick with shorter-term bonds. The managers of good bond funds are probably already doing that.

You seem to be on the right track.

Good luck!  

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Warren Boroson


Author of "Keys to Investing in Mutual Funds" (Barrons), "Ultimate Mutual Fund Guide" (Probus), "How to Pick Stocks Like Warren Buffett" (JKLasser), and "The Reverse Mortgage Advantage" (McGraw-Hill). Former financial columnist for Gannett News Service.


Author of 20 books; winner of 1996 Personal Finance award from Investment Company Institute and Washington University. Formerly on staffs of Money and Sylvia Porter's Magazine. Had a radio program (on WEVD) about mutual funds and a newsletter, FundDigest.

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