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For example:

PRRIX - https://www.morningstar.com/funds/xnas/prrix/quote Inflation Protected

SGVIX - https://www.morningstar.com/funds/xnas/sgvix/quote Intermediate Government

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https://www.investopedia.com/articles/bonds/08/bond-risks.asp

  1. Interest Rate Risk and Bond Prices
  2. Reinvestment Risk and Callable Bonds
  3. Inflation Risk and Bond Duration
  4. Credit/Default Risk of Bonds
  5. Rating Downgrades of Bonds
  6. Liquidity Risk of Bonds

PRRIX is a TIPS (aka variable rate) bond fund, which protects against Inflation Risk, which means that even when (like now) interest rates stay low, even though inflation is starting to rise (PRRIX's "current month" yield has spiked in the last three months).

That's good, since SGVIX is normal (aka constant rate) bond fund: it's bonds yield what they yield no matter what inflation does. This why PRRIX names itself Real Return (since real returns are "yield - inflation").

Unfortunately, PRRIX has a much longer Effective Duration than does SGVIX, which means that it's more sensitive to Interest Rate Risk (bond prices are inversely related to interest rates, and the higher the duration, the farther that the fund price falls when interest rates rise.

But since PRRIX is yielding more than SGVIX, your account's balance won't suffer as much as if you were holding a Long Government compared to SGVIX.

Bottom Line: bond funds are complicated. Very, very complicated.

Conflict of Interest statement: In late April, I started putting "new" 401(k) money in PRRIX instead of VBTIX (a Total Bond Market fund which is heavily weighted to US gov't bonds). I'll probably be moving some existing VBTIX into PRRIX.

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  • Are you familiar with these FXNAX MWTIX, PHYQX, PRRIX SGVIX SPAXX and they would perform if there is a pull back of 10% for the stocks? My 401K has only those under Bonds. I moved a good percentage to SPAXX. – wonderful world Jun 7 at 0:01
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    @wonderfulworld I only know about PRRIX (because I own some in my 401k), SGVIX because you just pointed it out to me, and SPAXX because it's Fidelity's cash fund. – RonJohn Jun 7 at 0:06
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    @wonderfulworld "(would they) perform if there is a pull back of 10% for the stocks?" That's market timing (you'd have to know when the stock market is going to fall, and how far it's going to fall, both of which are impossible for amateurs like us). – RonJohn Jun 7 at 0:09
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    @wonderfulworld note that solid bond funds do fall when "the market" corrects, because traders need to cash in bond holdings in order to satisfy margin requirements. I've noticed, though, that bond fund account values recover fasterand don't fall as far as do stock fund values. – RonJohn Jun 7 at 0:13
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    @wonderfulworld I just looked at Vanguard's TIPS fund. investor.vanguard.com/mutual-funds/profile/VIPSX It's value fell 10% in late 2012, and took six years to recover. – RonJohn Jun 7 at 1:15

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