Thread: F Fund

Welcome jmswan!! Thanks for joining us.

Sometimes the F fund can produce higher gains like when the stockmarket was falling in 2000-2002 and Greenspan was desperately lowering interest rates to help stimulate the economy. That was the time to be in F. Right now, G is less risky and the F fund risk/reward is not really worth a play right now. But like I said, there are times when it is.

Hope that helps.
Tom

F Fund = bonds

Bonds = bad right now

1% interest rate hike = 10% bond value decline

Interest rates are not going down.

Usually bonds and stocks oppose each other. Study bonds separately from stocks--it is a different slice of the investing pie.

Simple rule: buy into F as interest rates rise, sell when they fall. Of course, rates are still very low now - so it's probably a good idea to wait awhile (I doubt I'll throw anything into the F fund until the interest rates clear 5%).

Mike wrote:

Simple rule: buy into F as interest rates rise, sell when they fall. Of course, rates are still very low now - so it's probably a good idea to wait awhile (I doubt I'll throw anything into the F fund until the interest rates clear 5%).

Ummmm, huh?

I should've made that more clear... basically, you want to buy bonds when you think the interest rate is going to fall in the future. The reason for that is your bond's value is dependent upon the interest rate at the time you purchase the bond (of course, there are a lot of different types of bonds and a lot more goes into it than this, but for simplicity's sake, I'll avoid all those thorny issues, since this discussion centers around the F fund, which is a huge index of bonds). If interest rates are falling, prices for bonds will rise, because each future bond issued as the rates drop will be worth LESS than the existing bonds (which in turn increases demand for them). Likewise, as interest rates go up (as they are right now), bond prices fall - because the expectation is that the rates will continue climbing, making bonds purchased in the future worth more than bonds purchased at the present time (which diminishes demand). As for the 5% number I threw out there earlier, that's just a guess on my part - unless prices rise out of control for some reason, I just don't see the feds raising rates much above that threshold in the future - which is why I would buy at that rate, under the assumption that bond prices will begin rising shortly thereafter. The whole point is to try to buy bonds when you believe interest rates are at or very close to their maximum and are about to fall. I hope this explanation helps. As for the time at which we will hit that target interest rate, I don't know - but it probably won't happen for several years.

Thanks for the explanation, I realized that the F fund goes up as interest rates drop, but in your first post, you said buy when interest raise go up and sell when they go down. Little contradiction.

I've posted elsewhere that futures are currently being paid for at an assumed fed rate next year of 3.04%. I'm looking at more rate hikes soon after the elections. Maybe one more before then.

I was in the midst of a lengthy shift when I posted that... so my brain wasn't functioning at peak performance. So yes - my brain was down 10 cents a share that night. :-)

LOL, I know the feeling! :shock:

All true if you are buying a single bond with a given maturity date. The F fund performs just like a bond mutual fund. This means it never matures and has a net asset value. Don't mistake bond fund performance with individual bonds.