If interest rates are expected to rise, which is a better bet: individual bonds or bond funds?
FundX President Janet Brown has been investing in bond funds for decades, and in her latest piece for The Street, she explains why funds are a more cost-effective way of owning bonds and how they can help you navigate changing markets.
“Funds offer greater diversification, flexibility and opportunity than individual bonds, and these benefits are a tremendous advantage in uncertain markets,” she wrote.
The Advantages of Bond Funds
Diversification can help manage risk
Most bond funds own hundreds, if not thousands of individual issues, Janet noted, and this diversification can really help you manage risk.
“If the economy falters and more companies start to default on their debt, there could be far greater danger in a concentrated portfolio of individual bonds,” Janet wrote.
More investment opportunities can boost returns
Funds also make it easy for you to invest in floating rate (bank loan), high yield or foreign bonds, which could do well when interest rates rise.
“Buying individual bank loans, high-yield bonds or emerging-market bonds can be risky and costly,” Janet noted.
Click here to learn more how funds give you access to expert research and make it easy to adapt to changing markets — and find out which four bond funds are doing well now.