Dallas Voice (Dallas, Tex.), Vol. 11, No. 45, Ed. 1 Friday, March 17, 1995 Page: 16 of 52
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Assessing and coping with bond fund volatility
A balanced
portfolio should
include invest-
ments in bonds.
But buying indi-
vidual bonds
sometimes puts
them beyond
reach of many
investors, par-
ticularly if they
want to diversify.
For most of us,
bond funds —■ set up like stock mutual
funds — are an easy and certainly less
costly way to invest in income
securities.
Bonds used to be fairly stable, but
in recent years have become as volatile
as stocks in their price moves. Volatility
in bond funds means that prices move
inversely to interest rates: when rates
rise, prices fall. The question is, how
much volatility can you expect?
A bond’s maturity date is the year
that the issuing company promises to
pay off its loans — buy back its bonds
— at face value. While maturity can be
used as a general indicator of a bond
fund’s price volatility, “duration” is a
more refined indicator. Duration
measures the percentage change in the
market price of a bond — or the net
asset value of a bond fund — for every
percentage point change in interest
rates.
What duration means to bond
fund portfolio managers: Since it
addresses the trade-off between price
fluctuation and' income earned,
duration is used by bond fund portfolio
managers to achieve a targeted total
return over time. The prices of bonds in
a portfolio decline during periods of
rising interest rates. The result is that
interest earnings account for a larger
portion of total return than does asset
appreciation.
Tax-exempt funds, for example,
have a relatively high duration; in the
The point is that there
are no simple answers.
municipal market, therefore, high
dividends generally are available only
in longer-term bonds. Portfolio
managers, then, can address volatility
by purchasing Treasury or municipal
bond futures as hedges during times of
rising interest rates.
What this means to you: You
need to match your risk tolerance,
income need, timetable for meeting
financial goals and tax situation to the
most appropriate bond funds.
Remember, though, that duration
comparisons between different types of
bond funds don’t always tell the whole
story when it comes to assessing the
risk factor. You have to consider both
credit risk and interest rate risk. One
fund with relatively low duration could
decline in a recession because of a
greater risk of bond defaults. Another
fund with a higher duration might
appreciate in value as interest rates
decrease.
The point is that there are no
simple answer. It’s best to leave bond
maturities up to the professional
portfolio managers. They will weigh the
trade-off between shorter term bonds
that earn less income and longer-term
bonds that earn more. You and your
financial advisor, then, can assess
which bond funds might fit best with
your financial objectives. T
S. Kreg Bartley is a business and
personal financial planner affiliated
with the firm of Addington, Eubank and
Associates.
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MARCH 17, 1995
U.S. Navy drops
objections to CD-
ROM about gays
After threatening to take legal action
against a San Francisco multimedia
company, the U.S. Navy has dropped its
opposition to the use of a Navy
recruiting poster in a CD-ROM about
gays in the military.
In a letter to the attorney
representing Apollo Media, which is
producing a CD-ROM version of
Conduct Unbecoming, the book by the
late Randy Shilts, the Navy said it was
“sufficiently satisfied” with steps the
company had taken to prevent any
suggestion that the Navy was endorsing
the project.
Shilts’ book traces the history of
gays and lesbians in the military
services, and paints an unflattering
picture of the Pentagon’s attempts to
uncover and oust gay service members.
But the Navy agreed to the
company’s proposal to insert a
disclaimer on the CD-ROM’s inside
cover. The disclaimer clearly distances
the U.S. Department of Defense from
approval or endorsement of the disk. In
addition, the CD-ROM includes images
of two Navy letters protesting the use of
the poster.
The Navy earlier had asserted that
use of the poster violated U.S. trademark
law.
Apollo Media’s attorney, Michael
Traynor, strongly disagreed, saying the
company was entitled to protection
under the First Amendment.
A company official expressed
satisfaction over the Navy’s decision.
“I am delighted that we prevailed
and that the Navy did the honorable
thing,” said Clinton Fein, president of
Apollo Media. “This sends a clear
message that CD-ROM producers are
entitled to the same constitutional
protections as are print and other forms
of media.
The CD-ROM version of Conduct
Unbecoming is being distributed
nationwide. ▼
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Vercher, Dennis. Dallas Voice (Dallas, Tex.), Vol. 11, No. 45, Ed. 1 Friday, March 17, 1995, newspaper, March 17, 1995; (https://digital.library.unt.edu/ark:/67531/metapth616079/m1/16/: accessed April 24, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Special Collections.