LOW INTEREST RATES MADE ME BUY A BOND FUND
Ever since I started this blog interest rates have been about as low as they can go. At one point, Treasury bills were paying 0.00% in interest. That’s right, they were paying absolutely zero and some people were still buying them! I’m sure I am not the only one who is distressed at these low rates.
I have talked about the fact that the best money market rates are not that far behind the best CD rates. Maybe that is the place to put your savings to keep it liquid and available just in case rates go up. But how high and how fast can rates really go up from here? I mean you are doing well now to get just over 1% and to get that you have to lock your money up for a year in a CD. Even if rates double then you are getting somewhere around 2% which is still hardly worth mentioning.
So, in my desperation to figure out what to do with my savings I don’t need for awhile, I have decided to put it in a bond fund. The fund I chose is a front loaded fund which I hate but it’s record is really good so I thought I would take a risk. I am by no means endorsing this fund as I have no idea how it will do and I hope to make money but know that I may not.
PTTAX is the intermediate term bond fund I chose and you can see the chart below. It hasn’t had a down year in the 10 year span the graph shows and that includes 2008 that was such a horrible year for everyone in stocks.
This particular bond fund has some tax consequences that not all funds have and that would lower the rates of return but in the end this has been a solid fund for a long time and I decided to take the risk. Just like you I am asking when will interest rates go up and I have come to the conclusion that it will be years rather than months before they go up to any meaningful rate.
That means if you want to get a return of 5% or so on your money, you have to take risk and so that is why I bought into this bond fund. It has a good portion of it’s money in some safe things like Treasury bills and hopefully the risk is not too high. I will see how it goes and I plan to keep the fund as long as it is doing well and especially if it makes more than the current rate of interest.
Should you put your money in something like a fund that does carry risk just because interest rates are so low? The best money market and CD rates won’t pay you much but all your money is guaranteed safe up to $250,000 by FDIC. That safety is worth something for sure and it may help you sleep better at night. But if you want a higher rate of return like I do, you will have to take some risk. Hopefully the amount of risk I am taking is not too high and things will work out were I make a decent return on my investment dollars.
