Reader: I purchased Schwab YieldPlus (SWYSX), an ultra short term bond fund, as a part of my fixed income allocation looking for its income flow and price stability. I purchased it @ 9.43 and its now @ 9.17. If you owned this fund with the current market's fixed income volatility would you sell now or set a stop price level (% based) to sell at? My concern is that it has no current bottom in sight and could take forever to recover even to 9.43.

funds-newsletter: Well, it is interesting that you asked about SWYSX. Another long time subscriber I was working with told me he owned SWYPX, a different class of the same fund. This is what I told him on 8-9-07:

"Wanted to briefly tell you my initial thoughts on something I uncovered within your portfolio. It appears that your Schwab YieldPlus may have a small amt of problematic mortgage exposure. This is not a real big deal, I dont think, but, this is one reason I usually stick to Vanguard bond funds. As a result, SWYPX hasn't been doing as well as either a MM fund or a high quality, short-term bond fund such as Vanguard ST Inv Grade (VFSTX) lately. Therefore, I have no problem, in fact, I even think that you should liquidate it in favor of some other choices ..."

I got my info from the morningstar.com page for SWYSX which shows a large % holding in mortgages. If you compare SWYSX to the same page for a short-term bond fund that holds a higher quality portfolio such as VFSTX, you can see that it appears that your fund has attempted to boost its yield by adding these mortgages. Apparently, some of the mortgages it added have been those affected by the subprime crisis. Therefore, I would still follow the advice gave above.

Note: Take a look at the following chart comparing how the price has gone down since, compared to one of my recommended funds, Vanguard Short Term Inv. Grade. The chart shows price movement only, not including dividends.

http://finance.yahoo.com/q/bc?t=1y&s=SWYPX&l=on&z=m&q=l&c=vfstx

Reader Follow Up (12-6-07): I own Schwab's SWVXX money market fund! ? Safe or should I consider selling also?

funds-newsletter: This is a tough question to answer. I couldnt find anything specifically implicating this fund in the subprime crisis. And apparently, according to a web posting, many people have been calling Schwab to ask it as far back as in Aug. Their reps are apparently denying exposure to the problematic investments.

Rarely, if ever, has anyone lost money in a MM fund. I would be willing to bet a whole lot of money that if a Schwab fund did, they would still make it right by bringing the NAV back to its customary 1.00. They are such a big provider of funds, they would not risk losing potentially millions of customer accts. if they allowed their fund to lose money.

So, bottom line: I'm sure you are OK with it.