When to fire your dry powder

[almost there]

There is a certain "good" feeling you get from paying your home off.
That's what I would do / did yrs ago. The experts & tax folks will tell you otherwise. But for me it works. Mentally if nothing else.

I too am looking at bond funds. The only question I have is:
For the past 30 years we have been in a declining interest rate environment. And bonds have done well.

Say the next 30 years is an interest rising environment. What should that do to bond fund investments? Its got me spooked.

Hopefully someone here can shed some light on this.

 

[Totoro]

Say the next 30 years is an interest rising environment. What should that do to bond fund investments? Its got me spooked.

Hopefully someone here can shed some light on this.

It's pretty simple: with rising interest rates bonds get hammered.

How much?

As a good rule: Multiply the time left (duration) on your bond with the interest rate change. That's how much that bond will change in value. e.g. interest rate of 1% becomes 4% on a 30-year bond. As a result a 100$ bond of that type will be valued at 100$ - (4-1)x30 = 10$.

In other words, practically worthless. That's why some people call bonds "return-free risk" right now.

 

[panhead]

yeah, the historically low interest rates is why i've been keeping everything intermediate term. The long term muni fund shows a duration of around 7 years, but there have been discussions that this might not realistically reflect the risk of the fund due to callable bonds and the like. A penfed CD at about 3% would be a wash for my mortgage rate, maintain liquidity, and be very safe so this is my first choice. If they don't offer a nice rate at end of year, I'm going to have a decision to make as I don't want to let a decent (about 10%) of my invested capital making next to nothing for much longer.