The words in the title to this article may seem redundant, perhaps even disastrous, considering all the hurricanes, floods, and other water-related events we've experienced this year. However, liquid is exactly what we want to be, especially when we need funds to help us through material losses when floods and high winds strike. These funds will help us survive until the insurance company comes through to help pay for damage or total losses.

Over the past couple weeks, we covered how important asset allocation, or diversification, is to our portfolios. I don't know if I'm preaching to the choir on this topic, but I do know that I was totally unaware of how the money market and bond portions of our portfolios could work through BUYandHOLD. I'm not going to elaborate on my ignorance, but I will provide an example of how lost I might have been if I didn't know about how these plans work.

If you read this summer's articles, you know Cora and I experienced a flash flood at a friend's apartment in Kentucky. Fortunately, we were the only apartment that didn't sustain water damage. However, if we had, it would have been very unfortunate. Cora and I were on the first weekend of a month-long trip, and all our clothes, books, maps, and other traveling gear, including gifts, were in neat little piles on the floor. They would have been destroyed.

I had cash and credit cards for the vacation, and our plans were budgeted to the penny. If we had to buy new clothes or maps, etc., I would have looked at what I had in the bank, first, for extra money (yeah, right - drained). The loss wouldn't be worth selling equities, because my stocks were in a slump and I didn't want to take even more of a loss by selling them at the wrong time (buy low, sell high). The other option would be to remove money from a money market fund, if I had one. Now that I know that there is no minimum for BUYandHOLD money market funds, this is a new option for diversification (see last week's article). I have bonds, but I didn't buy them through BUYandHOLD. I would have taken another loss if I liquidated my bonds, because I'm under a strict timeframe and a penalty for early withdrawal.

All in all, to refinance losses for this vacation would have resulted in more losses. This is a situation we want to avoid at all costs (yes, that's a pun and a clich?). Frankly - and I never did tell Cora this - I would have just taken us home if we had lost our vacation inventory. Rather than lose cash, though, we would have lost a very good time. A Zen friend once told me to "think about the worst thing that could happen, prepare for it, and enjoy the best things that result." I'm not very Zen, but this event taught me a lesson. Now that I know what BUYandHOLD has to offer for liquidity, I doubt I'll ever face this predicament again.

We've already talked about the importance of growth funds (equities), and how we want to keep these as long-term investments. However, we know these are liquid if we absolutely need to cash them out for emergencies. We've covered the benefits of money market funds, and the advantage of the liquidity offered at BUYandHOLD for this asset. Now, let's take a quick look at bond funds, and see how they work at BUYandHOLD.

Before I send you to the page holding bond fund selections at BUYandHOLD, I want to give you a short grammatical primer. Firstly, investing in "bonds" at BUYandHOLD is not investing in fixed income. We are investing in a closed-end bond fund that is made up of various securities and bonds and you and I earn income based on the interest and performance of these bonds and securities without losing the liquidity that equity-securities offer us. Therefore, we have liquidity, because we're not generally bound by time frames like we would be if we bought bonds at the local bank or through the government. Keep in mind that we are, for the most part, long-term investors and our potential success in any investment will most likely be made in the long run. Remember that the income of the "bonds" that we are investing in via the closed-end fund is driven by the performance or management of the closed-end fund and maturity of those bonds that are part of the portfolio of the bond fund.

When you purchase bond funds at BUYandHOLD, you treat your purchase just like you would if you were purchasing a stock for your portfolio. In other words, you purchase and sell these shares of bond funds through their symbol, similar to a ticker symbol for a security. Now, if you go to the closed-end bond fund page, you'll find separate funds, their symbols, the investment objectives, current yields, and dividend shares for each bond fund. If you click on the symbol for any given bond fund, you'll see an expanded version of the stats for the fund. If you click on the "Annual/Semi-Annual Report," you'll get just that - a report about the fund's properties. If you want to know more about closed-end bond funds, you can follow this link.

One thing to remember about investing is this: when the market is selling out, investors just don't take their money and sit on it. Many investors shuffle their cash into bonds, in our case "bond funds" and money market funds until the time is right to divert the money back into equities. We shouldn't have to do all that work, however if we keep a fairly balanced and diversified portfolio. That way we won't feel the dramatic pinch of a downward market and our bond fund and money market funds should be relatively healthy, even if our stocks may suffer a bit. Two of the benefits of diversification that we should realize are less worry and a balance to our lives and portfolio.

I just know I would be very happy to release my money from the confines of typical bond-age. To that end, the liquidity of bond funds at BUYandHOLD may make more sense. So, while others are playing asset allocation with growth, fixed, and liquid funds, we can play with liquid, liquid, and even more liquid funds. In this case, that much fluidity is a good thing, even Zen-like.

Until Next Week,
Linda Goin