The Investment Life too Unpredictable for your Tastes? Try Bond Funds this Season
If you haven't ever considered bond funds as a way to invest for the future, you could have missed out on quite a bit over the last 10 years when the stock market decided to set up camp in the basement more than once. Through the last decade, almost every kind of bond fund has rewarded investors with more than 6% annualized, and it has taken less effort, and less handholding than stocks. But you have heard haven't you, of the sage old investment warning that cautions you when you decide on an investment vehicle - past performance isn't ever to be trusted as a way to predict the future? That is just true of the bond fund - you can't just go and plonk your money down on any bond fund and expect it to work for you.
There at least ten kinds of bond fund - foreign government IOUs, high yield corporate bonds and treasuries among them. There are so many investment areas that bond funds specialize in - you want to find out which areas perform the best, and direct your investments among a selection of those. One way to do it for instance would be to put half of what you have on treasuries, most of the rest in maturities, and the remaining in mortgages and junk.
The other way would be to get a little bit of every food group, favoring no one over the other, so that you don't have to sit there analyzing each choice. Many bond fund companies will be flexible enough to invest your money all over the fixed income market place; they'll take on maturities that go long-term, and others that don't; they'll buy high-quality stuff and low quality; they'll invest here and also in other parts of the world. These are called all-in-one funds or multisector funds, and they are run by some of the best and brightest minds in finance. But flexible bond funds like this that can invest in anything, are only about 40% dependable. You can't even look at what kinds of investments they have been known to take up in the past to work in a level of predictability. They truly can turn around and go anywhere in the future. Still, they are bond funds nevertheless, and are better than most other kinds of investment for dependability. If it worries you, you could just put most of your money in a high quality bond fund and only a small part in multisector ones to kind of give your adventurous side a bit of play.
If you are someone who wants good quality investments on autopilot, the bond fund is exactly for you. You would do well parking all your money in them. However, it wouldn't hurt you in the long term to perhaps put only three quarters of your money in bonds, and the rest in stocks. Even the most aggressive of investors, when they want a little stability in their lives, look to bonds. Let's look at some of the choices there are out there for every purpose you might have in mind to want to pick a bond fund to invest in.
If you are looking for a regular income off your bond fund investments, T. Rowe Price can't go wrong. It has 11 taxable bond funds that are a decade-old, and most of them have beaten every one of the products thecompetition has. And as with any kind of investment fund, what you need to look for is the track record of the management group of the investment company you pick. T. Rowe Price is second to none here; Fidelity Strategic Income does well too. Both of these funds have very strict rules of marketing engagement, and work creatively within them. Rowe Price invests mostly in corporate bonds, and Fidelity does equitable split between US government debt, junk bonds, emerging market debt and so on.
If it is total return that interests you, Loomis Sayles Bond is the gold standard. They've risen more than 40% in the last year alone, and you get more than 8% in annualized return. They are turning their investments a bit on the conservative side now in response to what they feel are changes in the US interest rates. They have taken to investing in foreign currencies too lately. Over the long-term, as a bond fund investment, this is the horse to pick.