"Richard J Kinch" <nobody[at]nowhere.com> wrote:
- quote -

TO my knowledge NO fixed income fund does that, at least not
exclusively. Ever wonder how to calculate duration on a bond
fund...?

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Norwood, MA 02062
www.woods-financial.com

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Richard J Kinch <nobody[at]nowhere.com> wrote:
- quote -

Well, yes, fixed interest rate and fixed income mean more or
less the same thing. What they don't mean is fixed asset
value.

Problem is, the value of fixed-interest-rate investments
varies inversely with interest rates. Say you buy a 30-year
T-bond yielding 4%. Interest rates move up to 5%. The price
of your bond drops from 100 to 80, because its 4% coupon is
no longer the going rate. If you hold it to maturity, you
will still get that 100 at maturity, but you'll have to wait
a long time for it; if you have to sell it tomorrow, you'll
get 80 for it.

But a fund portfolio is worth only what the fund could sell
it for today. Say your fund stocks up on 4% T-bonds, then
interest rates go up to 5%. They have to mark their holdings
to market every day, which means their net asset value will
fall from, say, $10/share to $8/share or so.

The long decline in interest rates made many
fixed-income/fixed-interest-rate funds look very good
indeed, because their asset values went up as interest rates
declined. The recent rise in interest rates has clobbered
every one of them; a 2.5% loss in one quarter (which works
out to your 10% annualized) is not bad at all.

--
Chris Green

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Richard J Kinch wrote:
- quote -

Most long term bond funds fluctuate in value with changes in
interest rates. A long term bank certificate would not. But
this is an investment issue and not a tax matter. The person
who sold you this product should have explained the basics
or at least determined that you understand how long term
debt investments work.

--
Frederick E. Jorden http://Tax-Accounting-Payroll.com
7825 Midlothian Tpk - 207 Richmond, VA 23235-5247
EMAIL knowtax[at]bigfoot.com
(804) 320-6210 FAX (804) 320-6211

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Christopher Green writes:

- quote -

I guess I misunderstood the nature of the investment. I
thought fixed income meant the return was a fixed interest
rate, that they were buying treasury bonds and holding to
maturity. I understand bonds and bond pricing but I didn't
understand that this investment was anything but a fixed
interest rate portfolio.

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Missy Doyle writes:

- quote -

It's a Section 529 plan. It exists merely to avoid taxes.

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Richard J Kinch wrote:

- quote -

Then I guess my daughter got the same statement and same news.

I had already decided not to send her money for grandson's
529 plan (FLorida) but instead call upon my own ROTH
investments down the line to fund his education. It's all
about "control"; and in the "alternate" and he doesn't go
to college, I can then "delete" my contributions.
(Ctrl> Alt> Del!) lol

ChEAr$,
Harlan Lunsford

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Richard J Kinch <nobody[at]nowhere.com> wrote:

- quote -

I don't see a tax question here.

Missy Doyle

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"Richard J Kinch" <nobody[at]nowhere.com> wrote:

- quote -

When interest rates rise, fixed income securities lose
value.

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Richard J Kinch <nobody[at]nowhere.com> wrote:
[snip]
- quote -

"Fixed income" funds get clobbered when interest rates rise.
Nothing unusual there, no reason for deeper explanations at
all. If you were told that the funds' value would not
decline (which is different from being told that the funds
are low-risk), you were misled; if you overlooked the
discussion of risks that pointed this particular risk out,
that's too bad.

--
Chris Green

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Richard J Kinch wrote:

- quote -

I have not researched your question. However, any fixed
income portfolio is subject to interest rate risk (prices
drop when rates go up), default risk (high yield bond
defaults) and if invested in mortgage backed securities,
prepayment risk (mortgages are prepaid and the funds get
invested at lower rates). As the FL 529 fixed income
portfolio includes all types, I assume its performance was
impacted by all of the above. As a reference point, the
Lehman Aggregate Bond Index for 2Q04 dropped ~2.5%.

--
Alan
http://taxtopics.net

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Richard J Kinch wrote:

- quote -

If the funds were invested in long term bonds there could
have been a decline in value because interest rates have
started to increase recently.

--
Frederick E. Jorden http://Tax-Accounting-Payroll.com
7825 Midlothian Tpk - 207 Richmond, VA 23235-5247
EMAIL knowtax[at]bigfoot.com
(804) 320-6210 FAX (804) 320-6211

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Got my quarterly statement for my investments in the Florida
529 plan college investments
<http://www.florida529plans.com> .

The "fixed income" funds (supposed to be invested in US
bonds, corporate bonds, mortgage-backed bonds) lost over 10
percent annual rate over the past quarter. What gives?
This is supposed to be the lowest risk and lowest return
fund.

Florida's fund is managed by US Trust, part of Schwab.

Calling the management got me nowhere. They said they had
no explanation for why the money was being lost, and
couldn't tell me what investments they were holding.

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