When I meet with both prospective and existing clients and I ask the question: “What are your investment goals?” the two most common responses are that they are seeking to grow their funds for retirement or saving for their children’s college education.
Frustration with savings accounts and other traditional fixed rate deposits have led them to explore investment options. But even then, they are often disappointed as they are faced with the reality of low returns on fixed rate investments. Gone are the days of double-digit interest rates — which is not great if you are borrowing funds, but great when you are saving or investing.
Bonds are good long-term investment options, and of course we have said over and over again that diversification is key for investing success, so it is best to create a portfolio of bonds as opposed to investing in just one or two bonds.
But what if you don’t have sufficient means to construct a portfolio with adequate diversification? Where do you turn? The answer to your dilemma could be a mutual fund.
When most investors mention mutual funds, they are usually talking about funds that invest in stocks. Bond funds work just like stock funds, but they invest in — you guessed it — bonds rather than stocks.
A bond mutual fund, or ‘bond fund’ as it is more commonly called, is a professionally-managed fund that is invested primarily in bonds and other debt instruments. The type of debt the fund invests in will depend on its focus, but investments may include government, corporate, municipal and convertible bonds, along with other debt securities.
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