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Originally Posted by Russell
1. Interest rates are rising and Charles Givens' strategy says to start moving out of stocks and into money market funds. What are your thoughts on this strategy ?
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Well, it
WAS a good theory back in the good old days (before 2001), but it’s a rather late call. The time to get out of the stock market (as a whole) was before 2001, as it’s down for the fifth calendar year in a row.
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2. How different are money market funds from bond funds ?
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Very different.
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From what I've read, money market funds invest in short term bonds. Bond funds also invest in bonds so is it safe to assume that both are similar ?
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Money Market funds, in other than extraordinary examples, offer shares that are FIXED in price (usually at $1.00 each), whereas the shares of Bond Funds move with the markets.
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If so, why does Givens think that bond funds should used when the interest rate is declining
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Because, as interest rates decline, the value of the underlying bonds held by the fund would RISE in value.
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and money market funds should be used when the interest rate is rising ?
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I assume because he considers it a safe holding position, particularly compared to the falling value of bonds and the faltering performance of stocks, in rising interest rate environment.
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3. I read somewhere that its not a good idea to buy mutual funds towards the end of the year, something about dividends and capital gains that you'll have to pay ?
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That concern is generally only expressed by those with large sums invested that could find themselves with tax bills on large earnings.
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Not sure what the difference is between dividends and capital gains
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A dividend is a disbursement of the funds earnings that are shared with the shareholders, whether from interest or dividends from securities they hold, whereas capital gains is the gain in the value in the underlying securities.
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