This Is Why You Should Ditch Your Bond Funds And Buy Some Bonds Instead
Rising interest rates are very bad for bond funds while individual bonds held to maturity can … perform considerably better. / Sweden OUT
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Bond funds took a hard hit this year, as interest rates climbed sharply – and are likely to keep rising. This is not just very bad news for bond fund holders it contradicts the long-standing belief that equity portfolios can be effectively diversified with bond funds.
To be sure, bonds can still be excellent investments. It is just that bond funds are not good proxies for individual bonds at least not in the same way equity funds are good proxies for individual equities. This is a crucial distinction that has big implications when it comes to the construction of an investment portfolio.
Bond funds are pools of individual bonds, in the form of ETFs or mutual funds . Unlike equity funds, bond funds are very different from the assets they hold. While an individual bond has a periodic, fixed payment and a stated maturity date at which principal is repaid and the bond ceases to exist, bond funds operate in perpetuity and pay dividends that fluctuate over time. This means that while bond buyers receive a known yield when they buy a bond and hold it maturity, bond fund buyers have no way of knowing what total return they might receive in any given period.
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Ishares Intermediate Government/credit Bond Etf
- NAV as of Jan 03, 2023$102.6952 WK: 100.18 – 113.48
- 1 Day NAV Change as of Jan 03, 20230.29
- NAV Total Return as of Dec 30, 2022YTD: -8.46%
- Fees as stated in the prospectus Expense Ratio: 0.20%
1. Exposure to U.S. government and investment grade corporate bonds that mature in 1-10 years
2. Targeted access to a specific segment of the domestic credit market, which includes Treasuries, government-related bonds, and corporate bonds
3. Use to seek stability and pursue income
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How Much You Can Invest
How much can you bring to an investment? The more money you can invest, the more likely its going to be worthwhile to investigate higher-risk, higher-return investments.
If you can bring more money, it can be worthwhile to make the time investment required to understand a specific stock or industry, because the potential rewards are so much greater than with bank products such as CDs.
Otherwise, it may not simply be worth your time. So, you may stick with bank products or turn to ETFs or mutual funds that require less time investment. These products can also work well for those who want to add to the account incrementally, as 401 participants do.
How To Buy Ishares Etfs
There are many ways to access iShares ETFs. Learn how you can add them to your portfolio.
Discuss with your financial planner today
iShares funds are available through online brokerage firms.All iShares ETFs trade commission free online through Fidelity.
iShares unlocks opportunity across markets to meet the evolving needs of investors. With more than twenty years of experience and a global line-up of 1,250+ ETFs, iShares continues to drive progress for the financial industry. iShares funds are powered by the expert portfolio and risk management of BlackRock.
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What To Consider
As youre deciding what to invest in, youll want to consider several factors, including your risk tolerance, time horizon, your knowledge of investing, your financial situation and how much you can invest.
If youre looking to grow wealth, you can opt for lower-risk investments that pay a modest return, or you can take on more risk and aim for a higher return. Theres typically a trade-off in investing between risk and return. Or you can take a balanced approach, having absolutely safe money investments while still giving yourself the opportunity for long-term growth.
The best investments for 2022 allow you to do both, with varying levels of risk and return.
Investing can provide you with another source of income, fund your retirement or even get you out of a financial jam. Above all, investing grows your wealth helping you meet your financial goals and increasing your purchasing power over time. Or maybe youve recently sold your home or come into some money. Its a wise decision to let that money work for you.
While investing can build wealth, youll also want to balance potential gains with the risk involved. And youll want to be in a financial position to do so, meaning youll need manageable debt levels, have an adequate emergency fund and be able to ride out the ups and downs of the market without needing to access your money.
There are many ways to invest from very safe choices such as CDs and money market accounts to medium-risk options such as corporate bonds, and even higher-risk picks such as stock index funds. Thats great news, because it means you can find investments that offer a variety of returns and fit your risk profile. It also means that you can combine investments to create a well-rounded and diversified that is, safer portfolio.
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