If you are investing for income or want to diversify your portfolio, you may want to consider investing in bond funds.
Bond funds can offer investors many of the same benefits of individual bonds, in addition to the advantages of diversification and professional management, according to “Bond Funds: The T. Rowe Price Investment Guide.”
Investing in bond funds is different from individual bonds. When you invest in a bond, you lend the issuer money. The issuer then pays you regular interest for the duration of the bond and repays the principal at the bond’s maturity date, provided the issuer does not default.
A bond fund is a mutual fund that comprises many bonds, with a professional fund manager who buys and sells securities to keep the fund true to its specific investment objective. A bond is a debt security, similar to an IOU. Bonds can serve as an attractive “middle ground” between stability (cash) investments and stocks, offering investors the potential for more meaningful returns than cash investments – with less overall volatility than stocks.
An appropriate asset mix is essential to your long-term...
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