That is correct. The yield has changed because the price changed. More accurately, the price changed because the yield changed. The current dividend payment in dollars does not increase immediately. The overall response of a bond fund investment in the presence of interest rate changes is complicated and needs structured analysis that an investor needs to study and understand. Comments like "making more income" are not even wrong.I still can not figure out when I read that even though your NAV of your bond fund drops when rates rise, I hear that "don't worry because you will be making more income". But my mathematically challenged brain thinks that the SEC 30 day yield I see posted is based on the current price of the fund. In other words, it looks like the yield is the dividend divided by the current NAV. So when I think I am making more income because I bought the fund when the rates were 2% and now they are 5%, isn't the 5% based on the lower price, so that my actual income from the fund is not really rising at all? Is the investor who is taking the monthly dividends out to live on going to actually see more money coming to his bank when the rates rise?
Thanks for your time and opinions....
An alternative is to not get embroiled in a concept of "income" and rather start with a concept of return as a variable property of investment assets and attend to the overall properties of your portfolio of stocks and bonds.
Why are you invested in a bond fund and what are you expecting from it.
I hold stock and bond funds and primarily attend to what is the overall path of the total value of the portfolio in time. This has lots of fluctuation which is expected to be more with more in stocks and less with less in stocks. I also attend to the rate at which I am taking withdrawals. This also has large fluctuations. In both cases one can look at the overall direction in time. Time in this case is measured in decades. Investing in risky. That's all.
Statistics: Posted by dbr — Sun Jul 28, 2024 9:15 am — Replies 3 — Views 179