Bond Fund jargon
Yield - What the bonds have paid in the last 7 to 30 days. Kind of worthless to look at.
Net Asset Value (NAV) - What the bond fund is worth, per share.
Total Return - What the bonds have paid dividends, along with their Net Asset Value changes.
However, I can't seem to pin down what period of time this value uses. Hopefully, its over 12 months.
Without knowing the time frame, its worthless.
The way it plays, if I remember right
The bond funds spit out a dividend, and the NAV goes down.
The NAV eventually goes back up...and it spits out another dividend.
While its doing this, it becomes very hard to track, unless you have kept a log of everything.
For example: Take an instance where you invest $100 to buy 100 shares in a bond fund for $1 a share(nav).
When the bond fund pays a dividend, its NAV drops to $.90 a share. Fair enough.
The bond fund pays out a 10% dividend and you don't reinvest it in the fund.
You get $100 because the Dividend=$.10 . You have 1,000 shares worth $900.
You gained nothing. You only gain $10 gain when the NAV goes back up to $1.
The bond fund pays out a 10% dividend but you have the dividend purchase more shares.
You get $0 because you rolled the Dividend over, the NAV drops to $.90 .
You now have have 1,100 shares worth $1,000 (1000x$1 + 100x$1)
You gained nothing. You only gain $10 when the NAV goes back up to $1.
There may be an advantage to buying the bond fund, right before it pays the $10 dividend.
The price of the fund before it pays the dividend should be $1.10, I'd think.
All of this makes funds very difficult to track without keeping a log.
If you have the dividends payed to you, then you have to keep a log of all payments.
Its comforting to know that if you have the dividends paid to you for years and years and years, its unlikely that the NAV of the fund would ever drop much less than your original purchase NAV.
Wednesday, July 25, 2007 7:08:48 AM, From: jim, To: Stories