Bonds or Bond Funds?
A staple in balanced portfolios, bonds are available as individual investments or through collective funds. Art Rothschild notes some advantages to bond funds. Here is a transcript of the Money Talk Video:
We always believe that it’s important and appropriate to have bonds in a portfolio. They provide balance with stocks so that you can withstand the volatility, or the ups and downs, of the stock market as it goes up and down. They’re also important because they provide a steady stream of income.
There are two ways that investors can acquire bonds. You can either take the time, go to the effort of buying individual bonds. You can research your bonds, acquire individual bonds, or you can buy bond funds.
Bond funds provide the flexibility of being able to get in or out of bond funds as the environment – the interest rate environment, or your own personal circumstances – change. For example, it wouldn’t be unusual to use a very short-maturity bond fund to liquidate periodically to provide for distributions that you need in retirement.
There are some cases in which it might pay to own individual bonds. One specific example is in an environment in which we expect interest rates to decline. In that case, by buying a longer-maturity bond with a higher yield you can profit as interest rates decline.
Arthur Rothschild is vice president at Landaas & Company.
Money Talk Video by Peter May
(initially posted July 15, 2013)
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Comparing Bonds and Bond Funds, by the Financial Industry Regulatory Authority