How far into a Defined Maturity Bond Fund does it stop making sense?

Question

Some here have suggested instead of Individual Bonds I should look for Bond Funds. I’ve looked into Guggenheim BulletShares and Fidelity Defined Maturity Funds. What I’m not clear on is the timeline for starting compared to the return. In the last 12 months Fidelity closes the fund to new investors. But if I’m looking at a 3 year or even 5 year timeline won’t I miss out on significant gains using one of these predefined bond ladders?

For example, Fidelity 2017, inception date was in 2011. So, even though 2017 is a good timeline for me, won’t the returns be tapering off in the remaining years? At what point after Inception does it make no sense to go this route?

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For example, Fidelity 2017, inception date was in 2011. So, even though 2017 is a good timeline for me, won't the returns be tapering off in the remaining years? At what point after Inception does it make no sense to go this route?

passing through · Answer

what I understand the OP to be saying is ... "since the yield curve is lower at short maturities, don't you give up yield by owning short maturity bonds instead of longer maturities with higher yields?"

The statement is true.  But when your need for cash is approaching, the value to you of cash-certainty is supposed to be greater than your need for a higher (but risky-value) returns.  Your personal trade-off depends on your need for the cash.  If there are huge penalties for failing to come up with the cash then you accept lower returns.  If your projected purchase can be delayed, then you stay with longer-term bonds and accept the risk.

How far into a Defined Maturity Bond Fund does it stop making sense?

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