Sound Advice Financial Planning
The Beauty of Bond Funds
Just how savvy is the average investor when it comes to bonds? The results of a basic market knowledge quiz posted on the National Association of Securities Dealers Web site might surprise you.
Well over half, 65 percent, failed the quiz. Only 39 percent understood the relationship between bond prices and interest rates, and 97 percent thought they needed to be better informed.
For some, bonds may seem boring and byzantine. But bonds can play a crucial role in your investment mix by offering the potential for income, diversification, and reduced volatility. For people without the time, interest, or energy to learn all the ins and outs of bond investing, a bond mutual fund may be one option to consider.
Mutual funds are sold only by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.
Bond Fund Benefits
Professional management. Bond funds are managed by a professional investment manager or a team of managers who conduct ongoing research and analysis on the bond market.
Diversification. Bond fund investments are typically spread across different types of bonds from various issuers with differing maturities. This diversification may help reduce risk in the portfolio.
Low cost. Buying individual bonds can be expensive, with some costing $25,000 or more. The minimum investment requirement for a bond fund, on the other hand, can be as low as $1,000.
Liquidity. Bond fund shareholders can redeem all or a portion of their shares at any time.
Given these features, it's easy to see why some people might prefer bond funds over individual bonds.
Of course, it is important to be aware that bond funds are subject to interest-rate, inflation, and credit risks associated with the underlying bonds in the fund. The value of bond mutual fund shares will fluctuate with market conditions. Shares, when redeemed, may be worth more or less than their original cost. As interest rates rise, bond prices typically fall, which can adversely affect the fund's performance.
Please call me so we can review your investment portfolio.
1) CNN/Money, December
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