Bonds vs. Bond Funds
The attractiveness of many individual bonds comes from three primary characteristics: return of the par-value of the bond, a fixed interest rate and a fixed maturity. Although the value of an individual bond may decline in the secondary market as interest rates rise, if a bond is held to maturity, it will repay the par-value. The challenge with Bond Funds is that none of these benefits of individual bonds is present. The principal value of the Bond Fund and the interest rate will fluctuate in the market. An investor has no idea what a Bond Fund’s value will be on liquidation because there is no ultimate maturity.
Yield vs. Risk
At Biondo Investment Advisors, we generally prefer purchasing individual bonds. In the current environment, we suggest maturities of no more than two to five years. While this strategy will reduce yield, investing in longer maturity bonds exposes the investor to interest rate risk. With today’s challenging bond market, investors seeking higher current income often will take on additional risk in order to generate attractive yield. We think this is a misstep, as the longer the bond’s maturity, the greater the sensitivity to interest rates. We welcome the opportunity to sit down with you to explore suitable solutions for your fixed income needs.
Prudence and patience will see investors through these challenging times as we strive to find attractive yields to help satisfy our client’s income needs.
The content herein is general in nature and does not constitute a solicitation by us of the purchase or sale of any securities. Past performance does not guarantee future results.
