either way they work out the same. although bond funds have a variable value every day they have a variable interest rate to match. a bond has a fixed value and a fixed interest rate. at the end of the approximate duration period returns will be very close. the slight expense on the bond fund is usually offset by the better pricing and knowing how to play the game on a professional level.
An individual bonds value will vary over time just like a bond fund. You will receive a 100% of your investment back when the bond matures but during it's life time it value and yield will vary. The yield I receive does not vary from what it was when I purchased it. That is what I like. I like to be in control of my investments. I also do not invest in stock funds. I invest directly in individual stocks. I am a buy and hold person not a trader which does make a difference.
yes and no. you may pay 1200 to buy a bond thats worth 1,000 bucks at maturity depending on the coupon rate of the bond. a bond fund has a timeline too. the combination of the variable interest rate and variable principal always work out to an almost fixed amount if you are in the bond fund for the duration value of that fund.
if you pay 10 dollars and get 5% the day you buy in, if rates rise to 6% and the funds duration value is 5 than the funds principal falls to 9.50 but now your getting 6%. it takes 5 years to breake even. at the end if you sell it works out to the same rate as the day you bought in. of course you may vary ever so slightly up or down but basically you will be in the ball park.
only newly issued bonds bought direct are at par. every other bond is traded above or below par to compensate for the interest rate of the moment
I'm looking for something safe. I have Fidelity bond funds as part of my 401k, but have heard that funds are not as good as just bonds. Is any of this true? I have never bought any kind of bond, just bond funds.
Edited to add: chinaco it seems like everyone in the US is trying to get international fixed income investments. The number of international bonds available in the last few months has been very slim. I am also wondering if we are seeing a feeding frenzy because of the decline of the dollar. This can happen in foreign currency market just like it does in the stock market.
Aren't most bonds callable? So you really don't have complete control over the interest you receive with them either, because if rates get a lot cheaper than what the bonds are paying, the issuer will buy them back. Or are callable bonds a thing of the past? I've never bought an individual bond.
glinka, bond funds in your 401k from Fido will be a fine choice if you are looking to reducethe volatility of your portfolio. But beaware that you are probably giving up some return over time and that high grade bonds might not be the greatest buy right at this moment. But if your portfolio doesn't have at least 10 to 20% bonds, its still worth buying some.
I am 57 and have been retired for 2 years. I have 30% of my 401k in bond funds. I am concerned that I have too much or too little in bonds funds. When I read about percentages you should have bonds to equities they always talk about 65 as the retirement age. How do you figure what is enough?
since having to sell equities in a down market can be the death of your nest egg i would like to always have 10-14 years of relatively safe money based on yearly withdrawls in bonds,cash,non traded reits and annuties. the rest stay as aggressivly invested as if i was 20
Risk tolerances is moderately aggressive. In the first two years of retirement We live totally off company pension. Hope not to touch 401k or any Roths until I'm 60, in three years. 401k is 20% Contra fund, 10% foreign fund, 20% index, 10% mid cap, 5% REIT and 35% in three different bond funds.