ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Bond Funds

Updated on November 9, 2011

Bond Funds - Hold em or fold em!

Bond funds, also known as bond mutual funds can be good or can be trouble. I offer this opinion after having invested mine and other people's money for many years. While the fund manager is important, they are held captive by interest rate cycles and that is the most important variable in determining if you should invest in bond funds.

Bonds go in cycles that are long lived; sometimes the cycles can last decades. I have experienced 20 years of rising interest rates and 20 years of decreasing interest rates. That would mean, I have been through it all and folks we are repeating that cycle.

Bond funds do pretty well when interest rates go down because the value of the bonds they hold increases; as you know bond yields move in the opposite direction of bond prices. As prices increase, yields go down. Income from these bond funds usually does not increase because as higher yielding bonds mature, they are replaced by lower yielding bonds.

Bond funds do pretty terrible when interest rates go up. For instance, right now bond prices are very high. Bonds are expensive that means bond income is very low. If interest rates go up, and some day they will believe me, the value of the very expensive bonds that make up your fund will go down. Even the best fund manager cannot navigate that math. Bond funds will lose value. Equally, the income from these bonds should increase as the bonds mature they will be replace with bonds that yield more money. You might be tempted to move onto the next Hub at this point but listen up.

Here is where my experience comes in. I have never seen the income from bond funds keep up with the income from owning your own bonds. Furthermore, I never seen the value of a bond fund keep up with the improved value of an individual bond bought at a discount and sold at a premium.

I know I will get a ton of emails with examples of an individual bond fund trade that worked for someone or a fund manager convinced his/her fund is a good investment.

The moral of this Hub is that if you own a bond fund, consider selling while the value of the bond holdings is high. Develop a strategy for investing that money for income. Do not believe any adviser that tells you a bond fund is safe. Every bond holding in the fund can be insured and you can still lose money.

My clients would come to me with a all kinds of existing investments. They thought their bond funds were the safe part of their portfolios. Depending on the interest rate cycle, they could have been right. But in today's world I would not count on your bond fund being the safe portion of your holdings.

That reminds me of the story about the 22% CD...another day.

Yours Truly,

TheMoneyMadam


Comments

    0 of 8192 characters used
    Post Comment

    No comments yet.

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)