Mutual Funds for Dummies by Eric Tyson

Author:Eric Tyson [Tyson, Eric]
Language: eng
Format: epub
ISBN: 9781119215547
Publisher: Wiley
Published: 2016-05-02T00:00:00+00:00

Investing in Bond Funds

It’s time to get down to how and why you might use bonds. Bonds may be boring, but they can be more profitable for you than super-boring bank savings accounts and money market funds. Bonds generally pay more than these investments because they involve more risk: You’re purchasing an investment that’s intended to be held for a longer period of time than savings accounts and money market funds.

That doesn’t mean you have to hold a bond until it matures, because an active market for them does exist. You can sell your bond to someone else in the bond market (which is exactly what a bond fund manager does if he wants out of a specific bond he holds in the bond fund). You may receive more — or less — for the bond than you paid for it depending on what has happened in the financial markets since then.

As I discuss earlier, in the section “Maturity: Counting the years until you get your principal back,” bond funds are riskier than money market funds and savings accounts because their value can fall if interest rates rise. However, bonds tend to be more stable in value than stocks (see Chapter 1).

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