Originally Posted by Rosalita
This is off topic - I was interested to know your thoughts on the difference between Bonds and Treasury notes with respect to the value of the investment potential and the safety in perserving the principal together with the interest.* *I'm new to Bonds or TIPs etc having kept to real estate, equities, CDs and MMs.*
Am I right that the Bonds payout depends upon the market rates fluctuating over a given year - that you are not locked into a specific rate.* How risky are they?
Rosalita: I'll take a stab at this. If you buy an indivdual bond, you are indeed locked into the specific rate that bond was paying when you purchased it. The value of that bond will vary over the period of time that you purchased it for. (If interest rates increase above the amount you purchased it for, your bond will be worth less if you cash in early. The reverse will happen if interest rates go down.
If you buy a bond fund (rather than an indivdual bond), the fund will replace older bonds with newer issued bonds as they go along. Interest rates rising, as they have for the last year or so,
will dampen the return on bond funds also.