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Re: .0
The question you have to ask yourself is simply this: do you think
8% is a decent interest rate to lock in for the next 13 years? If yes,
then go for it. If not, hold off.
Something to look out for when buying anything, of course, is the
amount of commission that the salesperson will be taking. It can
_really_ bite into your percentage return and perhaps lead to different
decisions if you look at it. Lets look at that $1000 bond you
mentioned. Since I don't have a specific maturity date for that bond,
lets pretend for this example that it will mature in exactly 13 years
from now. At a purchase price of $350, that bond will yield 8.41%
interest per year. Lets tack on a $50 commission which effectively
raises the purchase price to $400 -- now it only yields 7.30%. In
general, bond commissions come in the form of "flat amount + $XX per
bond (or a percentage of the bond's value)" which means that small
bond purchases end up with a proportionately large commission due
to the base "flat amount". Bottom line -- if you decide to get into
buying bonds, don't do it in small pieces. One decent sized purchase
is much more cost effective than is many small purchases.
-craig
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| .0> ... Today we can buy the $1000 bond for $350 and it
.0> will be worth the $1000 in the year 2005 (almost 8%) and these are
.0> U.S. Government backed.
Besides commissions as CY noted, you have to ask yourself what $1000
will be worth in the year 2005.
And try to find out more about that term "U.S. Government backed". The
only thing worth buying at ~8% is (stripped) U.S. Treasury notes/bonds.
Not "Treasury backed GNMA". Not "Treasury backed RTC". ONLY direct
obligations of the U.S. Treasury.
IMO, it would be better to wait a while until rates rise some. Too
many people are satisfied with 8% to make it a satisfactory yield.
John
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