The Motley Fool Discussion Boards

Previous Page

Investing/Strategies / Bonds & Fixed Income Investments

URL:  http://boards.fool.com/theres-an-important-difference-between-buying-a-30695696.aspx

Subject:  Re: Worst case for bond funds Date:  5/21/2013  8:16 PM
Author:  MisterFungi Number:  34957 of 35362

There's an important difference between buying a bond fund (or ETF) and buying the actual bonds themselves.

With a bond fund or ETF, when interest rates go up (and they will), the value of the asset will generally go down -- and so your parents will lose PRINCIPAL (which, you say, they absolutely do not want to do).

When you buy the actual Treasury notes (bonds, bills, whatever), you can be certain that if you hold the bond to maturity you will get your principal back. And the interest payments are gravy. The problem, of course, is that you will have to reach into fairly long maturities (i.e., longer than 10 years) to make more than 2 percent per annum.

Welcome to financial repression.

I am NOT an advisor of any kind. But with a reasonable balance of, say, Vanguard ETFs (Total US market, REITS, bonds, international), they will almost surely do better than 100 percent in bonds. And that goes double for 100 percent in bond FUNDS (or ETFs).

Anyone else, please feel free to correct anything I have said here.
Copyright 1996-2014 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us