Ask Terry Questions Floating Rate High Income Fund

Floating Rate High Income Fund

By Terry Savage on September 05, 2023 | Investments

Hi, Terry!

I’m looking at the Fidelity Advisor Floating Rate High Income Fund (FFRHX). It is currently paying a 7.50% dividend yield. I’m looking to invest $100,000.00 to sore up my income as my pension is being cut 40% in January. What are your thoughts on this fund and what should I watch out for with this? I’d like to also preserve my principal ($100,000). Is this fund vulnerable to major price changes as interest rates start to fall?

Thank you for your expert thoughts on this.

Terry Says

Did you read the description of this fund? Did you stop to consider that with safe T-bills paying 5.5%, and this fund paying 7.5%, there must be MORE RISK in it?

The risk is that the companies could default in a recession and stop paying interest, and the risk is that rates could rise and the share price of the fund could drop, until older investments mature and it can buy new, higher-yielding rate notes. The real risk is rising rates, not falling rates.

Yes, the risk is mitigated somewhat by the “floating rate” aspect, but still there is more risk here than in T-bills, where your only risk is that when they mature in 6 months, rates might be lower.



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