Thursday, December 02, 2004
Fixed Income Investing in Bonds? www.legacyannuities.com
Time Magazine Tells the Truth
If you have attended one of my seminars in the last 10 years, you have heard me speak about bonds vs. bond mutual funds. I advise investors to never own bond mutual funds for 3 reasons:
1. Bond funds do not provide the certainty of a fixed income. Individual bonds do. Bond fund dividends fluctuate and can never fluctuate upward.
2. Bond funds do not have a maturity date as do individual bonds. Therefore, return of principal is no assured.
3. Bond funds have management fees, individual bonds do not.
For these reasons, I notice that most experienced, larger investors buy bonds and not bond funds. But very few people have realized this disparity. Fortunately, Time Magazine ran an article on this issue in the March 2, 1998 issue. Here are some excerpts:
"The under-appreciated irony of bond funds is that while they invest in bonds they don't behave like them. They're more like a stock."
"Clearly, investors seeking to preserve capital and earn a fixed-income stream for a set period of time have no business flirting with such a beast. They should go for individual bonds."
"Bond-fund risk is just not well understood."
If you want to avoid a possible disaster and avoid being lulled into a false sense of security, I advise all investors to dump bond funds and get individual bonds. But you'll probably never hear this advice from a stockbroker—the commission on the funds are too high.
Time Magazine Tells the Truth
If you have attended one of my seminars in the last 10 years, you have heard me speak about bonds vs. bond mutual funds. I advise investors to never own bond mutual funds for 3 reasons:
1. Bond funds do not provide the certainty of a fixed income. Individual bonds do. Bond fund dividends fluctuate and can never fluctuate upward.
2. Bond funds do not have a maturity date as do individual bonds. Therefore, return of principal is no assured.
3. Bond funds have management fees, individual bonds do not.
For these reasons, I notice that most experienced, larger investors buy bonds and not bond funds. But very few people have realized this disparity. Fortunately, Time Magazine ran an article on this issue in the March 2, 1998 issue. Here are some excerpts:
"The under-appreciated irony of bond funds is that while they invest in bonds they don't behave like them. They're more like a stock."
"Clearly, investors seeking to preserve capital and earn a fixed-income stream for a set period of time have no business flirting with such a beast. They should go for individual bonds."
"Bond-fund risk is just not well understood."
If you want to avoid a possible disaster and avoid being lulled into a false sense of security, I advise all investors to dump bond funds and get individual bonds. But you'll probably never hear this advice from a stockbroker—the commission on the funds are too high.
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