FSITX Stability (Bond Funds Question)

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
pc95
Posts: 227
Joined: Sat Sep 17, 2011 9:26 pm

FSITX Stability (Bond Funds Question)

Post by pc95 »

I shifted a good chunk of 401k over to Fidelity FSITX in September wanting to put some money into something "stable", but see it's gone down about 1% in a month. Is this normal for bond funds (drop from $12.04 -> $11.91)? I realize 1% isn't too much in the investing world, but my idea was to protect that money from going down/losing value at the expense of possible better return. Just a bit perplexed. Are bond funds destined to lose a good bit of money due to credit worthiness in the near future - what's your thinking on this? Thanks
livesoft
Posts: 86080
Joined: Thu Mar 01, 2007 7:00 pm

Re: FSITX Stability (Bond Funds Question)

Post by livesoft »

I own this fund and bought more shares today. It is simply a total US bond index fund with a low expense ratio. Bond funds go up and down in value. So what if it has lost a percent in a month? How much did it go up in the two weeks from August 16th?

My thinking on this is that bond funds fluctuate in value, but that fluctuation is of no consequence to me.
Wiki This signature message sponsored by sscritic: Learn to fish.
livesoft
Posts: 86080
Joined: Thu Mar 01, 2007 7:00 pm

Re: FSITX Stability (Bond Funds Question)

Post by livesoft »

BTW, did you notice that this fund paid a substantial cap gains distribution in mid-October of $0.073 per share with a concomitant drop in NAV?
Wiki This signature message sponsored by sscritic: Learn to fish.
User avatar
Taylor Larimore
Posts: 32842
Joined: Tue Feb 27, 2007 7:09 pm
Location: Miami FL

Re: FSITX . Loss or Gain ?

Post by Taylor Larimore »

pc95:
I shifted a good chunk of 401k over to Fidelity FSITX in September wanting to put some money into something "stable", but see it's gone down about 1% in a month.
According to Morningstar, FSITX has enjoyed a small gain during the last month:

http://performance.morningstar.com/fund ... ture=en-US

Best wishes
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
User avatar
nisiprius
Advisory Board
Posts: 52220
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: FSITX Stability (Bond Funds Question)

Post by nisiprius »

pc95 wrote:I shifted a good chunk of 401k over to Fidelity FSITX in September wanting to put some money into something "stable", but see it's gone down about 1% in a month. Is this normal for bond funds (drop from $12.04 -> $11.91)? I realize 1% isn't too much in the investing world, but my idea was to protect that money from going down/losing value at the expense of possible better return. Just a bit perplexed. Are bond funds destined to lose a good bit of money due to credit worthiness in the near future - what's your thinking on this? Thanks
YES, it is normal for bond funds like FSITX to fluctuate that much. In 1994 FSITX lost something like 4% and stayed down for maybe a year-and-a-half.

To me, the defining difference between "cash" and cash-like investments is that with "cash," if you have $10,000 today, you will always have at least $10,000 a month from today. That's true of bank accounts, money market mutual funds, savings bonds, etc. It is not true of bond funds, not even short-term bond funds.

Some shoot-from-the-hip approximately-right observations.

1) Intermediate-term investment-grade bond funds fluctuate about a third as much as stock funds. So, relatively speaking, they really are safer than stocks, a lot safer, safer than the safest high-dividend stocks or low-volatility stocks or most-diversified-possible portfolio of stocks. Still you have to boldface the -er.

2) Call up a Morningstar growth chart using this live link and slide the mouse back and forth and watch the numbers go up and down for the bond fund, but only up for the money market fund. But also notice how much more you'd have earned in the bond fund. It's a risk-reward situation, like so many things in investing.

(I used FBIDX rather than FSITX because it goes back further--same fund, "investor" shares)

Image

3) Nobody knows what those 1% movements mean. It's probably not the sky beginning to fall. It could be, but probably not. It's probably just a random jiggle.

You ask: "Are bond funds destined to lose a good bit of money due to credit worthiness in the near future - what's your thinking on this?" No. The conventional wisdom might be more like this: is that bond funds are destined to lose a good bit of money, like 5%, maybe as much as 10%, when the Fed raises interest rates, which they've said will not be until 2014 at the earliest. The loss will be temporary--it will last about as long as the fund's duration. I call this the "conventional wisdom" because I don't think it's by any means certain how events will play out.

4) The reason why bonds are safer than stocks is that they pay known numbers of dollars on a known schedule, and in particular pay back their face value when they mature. Think of a bond as a time-locked Lexan box with a $1,000 in cash inside, that will spring open on (say) January 15th, 2022. If you own that box, you cannot get the money out to buy stuff with. It's not like a CD where you can make an early withdrawal. All you can do is to sell the box to someone else who's willing to wait until 2022. Everyone can see that the cash is there and knows when it will open. The problem is--turn it around, suppose someone wants to sell that box to you. You can examine the bills, they look genuine, you are 99.9% that the box will open on time--but you are not going to pay $1,000 for it. How much you are willing to pay depends on interest rates, your plans, and what other deals are available to you.

So, bonds are risky and have a fluctuating value that depends on selling them in the marketplace. But bonds are safe because everyone can see the exact number of dollars that are almost certain to be unlocked on a known day, so the market value is attached by a Bungee cord to that stable principal.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
pascalwager
Posts: 2327
Joined: Mon Oct 31, 2011 8:36 pm

Re: FSITX Stability (Bond Funds Question)

Post by pascalwager »

I have the VA Short-Term Fixed (0.95 yrs duration, US/foreign, govt/corp). Since 1/2006 the NAV has dropped 0.29% and since 12/2007, after rising, dropped 3.13%.

Over 6+ years, only 0.3% change.
VT 60% / VFSUX 20% / TIPS 20%
Post Reply