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Investing

Q: I am wondering if the mutual funds that specialize in long-term government bonds might start to become a good investment.

These funds have taken a beating since May and look like they might start to recover.

The yields are becoming attractive (3.5 percent), and I’m thinking they might be a good place to park some cash if the principal doesn’t decrease due to some Fed policy change.

A: But that’s the problem: The future may hold significantly higher interest rates.

Historically, long-term government bonds have earned about 2 percentage points more than the rate of inflation.

In other words, when inflation was running at 2 percent, like now, long-term Treasury bonds might be earning about 5 percent.

That suggests that in a “normal” market — one that doesn’t have the Federal Reserve buying $85 billion a month in long-term debt instruments — the yield on long-term bonds could be much higher than it is now.

This means prices would be lower. So that’s not a good parking spot. It’s more like a burial plot.

Q: My husband and I (I’m 80 and he’s 76), have had all of our IRA money (about $930,000) in an adviser-directed account at Fidelity for the last two years.

We both have a 60/40 mix. We pay $6,000 a year for both accounts.

The investments in the two accounts in the IRA just hit their benchmarks. We feel we would be just fine in index accounts that we monitor. We want to switch to Vanguard and have Fidelity roll over the money to them.

You can’t time the market, so the transfer is what it will be. However, can you advise us on a time frame and method of investing into the new index accounts?

A:
You can have Vanguard funds on the Fidelity platform, and you can have Fidelity funds on the Vanguard platform.

The only difference will be the small brokerage commission you will pay on transactions when you sell a Fidelity fund on the Vanguard platform or a Vanguard fund on the Fidelity platform.

This would be a consideration for a $50,000 or $100,000 account, but it’s pretty minor for a $1 million account.

What you can’t transfer are things such as proprietary unit-investment trusts where your brokerage firm is the only firm that makes a market in the security.

The bottom line is that you can stay at Fidelity and slowly liquidate your current portfolio to build your new lower-cost index-fund portfolio.

And you can do that by using exchange-traded funds (ETFs) from a variety of firms, including Vanguard. Indeed, Fidelity offers no-commission trades on 65 iShares ETFs, many with annual expense ratios nearly as dirt cheap as those from Vanguard.

Since you don’t have to move your account, you can also change your portfolio, to less risk or more risk, at a pace that suits you.

Questions: scott@scottburns.com

Copyright 2013, Universal Press Syndicate