There is a plethora of options available when it comes to fixed-income investments, and knowing how the options differ is the first step in finding the right fit for you. In this week’s digest, we highlight some key differences between individual bonds and bond funds.
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Closed-End Bond Funds Versus Individual Bonds: A Case Study |
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By Hildy Richelson and Stan Richelson
Closed-end municipal bonds may look attractive based on their yields and discounts to net asset value, but there are pitfalls to watch out for. This article is a case study of a defined-maturity closed-end fund. The analysis is not intended to criticize any specific fund, but rather to demonstrate where risks and pitfalls may lie with a closed-end bond fund (particularly a defined-maturity one) and how to go about identifying them.
Some of the topics covered in the article include:
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How differences in terminology can impact your evaluation of market returns
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The trade-offs of closed-end funds’ diversification
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Which closed-end fund characteristics to pay attention to
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Downside risks of closed-end bond funds
Whether or not you are currently invested in a closed-end muni bond fund or thinking about investing in one, this article highlights key differences between individual municipal bonds and closed-end muni bond funds. Awareness of these differences can help you to make appropriate adjustments in your analysis process.
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Choosing Between Bonds and Bond Funds |
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By Charles Rotblut, CFA
Bonds play a role in a portfolio, even when the outlook for interest rates is uncertain. They offer a lower level of volatility than stocks. Plus, bonds have historically had different return characteristics. Determining how to best get exposure to them can be a challenge, however, as there are advantages and disadvantages to choosing between bond funds and individual bonds. In the article Choosing Between Bonds and Bond Funds, AAII Journal editor Charles Rotblut highlights some of the key differences between individual bonds & bond funds so that investors are better equipped to make better investing decisions.
Some of the differences covered in the article include:
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Rate of return: fixed vs. market fluctuations
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Diversification in individual bonds vs. bond funds
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Ease of access to purchasing/selling
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What costs are associated
The decision of whether to buy a bond or a bond fund should be based not only on your goals, but also on the size of your portfolio, your personal preference about how involved you want to be with your portfolio and whether you want to work with a financial professional who is skilled in building and managing a bond portfolio. Knowing the differences between your options is the first step in your next investing decision.
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Member Question
Which investing profile best fits your portfolio allocation approach?
A) Aggressive
B) Moderate
C) Conservative
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Be sure to vote on this week’s question for the opportunity to offer your insights on our open-ended question. |
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New and Improved Portfolio Tracking |
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 My Portfolio is a brand-new tool at the AAII website designed by investors for investors. While My Portfolio can function as a simple watchlist, the true power of the tool comes from entering in buy and sell dates and prices. Multiple purchase dates can be accommodated for each holding. Entering your totals in cash and bonds gives you a more complete portfolio view. Clicking on a ticker opens a wealth of data for each security. And a handy notes section allows you to record your reasons for buying and intentions for selling. Check out this new feature for AAII members today! More » |
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