I hope I placed this in the correct section of the forum.
Can someone please explain what importance the Net Asset Value (NAV) plays in a bond fund if one plans to use the fund for interest income (not owning it for a potential gain) in retirement? I've heard from advisers (on the radio and else where) that owning a bond fund during a rising interest rate environment is bad because the NAV is inversely proportional to rate movement (as rates rise, the NAV of the fund will go down) but if one doesn't care about the NAV, and owns the fund for the interest income, it doesn't matter. I'm confused by this statement and haven't been able to find anything written about it on the net. To me, it seems that, just like stocks, you don't want to own any fund that goes down, right?
I own the Vanguard GNMA Fund that pays a reasonable interest rate and carries no credit risk since it is backed by the Treasury but it's NAV is at historic highs.
As interest rates rise, I expect that it's NAV will fall. Should I care as long as it continues to pay the interest? Is there a way to determine what portion of a funds appreciation is due to appreciation and which is due to the interst pay through? Thanks!
Can someone please explain what importance the Net Asset Value (NAV) plays in a bond fund if one plans to use the fund for interest income (not owning it for a potential gain) in retirement? I've heard from advisers (on the radio and else where) that owning a bond fund during a rising interest rate environment is bad because the NAV is inversely proportional to rate movement (as rates rise, the NAV of the fund will go down) but if one doesn't care about the NAV, and owns the fund for the interest income, it doesn't matter. I'm confused by this statement and haven't been able to find anything written about it on the net. To me, it seems that, just like stocks, you don't want to own any fund that goes down, right?
I own the Vanguard GNMA Fund that pays a reasonable interest rate and carries no credit risk since it is backed by the Treasury but it's NAV is at historic highs.
As interest rates rise, I expect that it's NAV will fall. Should I care as long as it continues to pay the interest? Is there a way to determine what portion of a funds appreciation is due to appreciation and which is due to the interst pay through? Thanks!