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Posted by -herb on June 10, 2008, 12:37 am
> WeathermanBill wrote:
>> Interested in Dodge and Cox Income (DODIX) so started my research at
>> their site and found the following holdings:
>>
https://www.dodgeandcox.com/pdf/shareholder_reports/dc_income_holdings_033108.pdf
>>
>> Concerned about the GSE holdings (Freddie Mac, Fannie Mae) as I heard
>> that both have eased restrictions on home loans. So researched:
>> http://www.ofheo.gov/newsroom.aspx?ID=422&q1=0&q2=0
>> The regularatory agency.
>>
>> Also read:
>> http://en.wikipedia.org/wiki/Mortgage-backed_security
>>
>> Really hesitant about putting money into DODIX due to exposure to GSE
>> bonds. Are these bonds that the GSEs used to raise capital?? Are
>> these mortgage baked bonds??? What I am trying to determine is what
>> is the risk I am looking at if I buy this fund.
>>
>> This is money my wife and I will need in 10-12 years.
>
> You should never put money into an income (bond) fund with the intention
> of holding onto it and later liquidating it for profit. It's not like a
> stock fund. If prevailing interest rates are higher in 10 years when you
> need to liquidate the income fund, you will take a capital loss.
>
> The purpose of an income fund is *income*. You buy it and live off the
> income it generates through dividends. Indefinitely.
>
> If you want income and you also want guaranteed return of principal, you
> should buy individual 10 year bonds (say Treasuries), and hold them to
> maturity. At maturity, you get your principal back in full. (But if you
> sold them prior to maturity, you're taking a principal risk again.)
>
> If you want income and you also want to take some risk for a possible
> capital gain as well, you should buy dividend-paying stocks or
> dividend-paying stock funds.
I agree with Steven but I would add that there is nothing wrong with making
income funds part of your long-term portfolio as a means of mitigating
volatility. Everyone has his/her own comfort level. FWIW: my personal
preference is 80% stocks/20% bonds (at all ages).
-herb
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