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Easter is the festival of resurrection. That would be more appropriate for today’s bond topic than Pentecost. Because bonds are experiencing a revival thanks to increasing interest rates. But today, we want to focus primarily on bond funds. As with stocks, this is aimed at spreading the risk known as diversification in the professional world. You can invest in countless different bonds with little money.
When it comes to stocks, wide diversification is an advantage, at least for smaller assets. But does this also apply to bonds? «Sleep well with ties; Eat well with stocks,” said stock market champion André Kostolany. Bonds are safer than stocks.
In the event of bankruptcy, the shareholders who own the company get nothing, while bondholders can expect at least some of their bonds to be repaid.
So why pack the so-called secure documents in a fund? Do you need hangers in addition to the belt?
It’s safer than sorry, someone can answer. But this comes at a cost: mutual funds are not free. It has fees that are imposed on the fund assets and therefore reduce the return.
Gopfried Stutz does not buy bond funds. If so, he will be more likely to buy individual bonds. Then you know what you have. You buy the bond, for example, at 100 francs when it is ideally issued. It has a fixed interest rate of 3 percent and a maturity of eight years. This is just an example.
The exchange rate fluctuates in the opposite direction of interest rates. If interest rates increase in general; bond prices fall and vice versa. Why actually? Because as interest rates rise, newly issued bonds carry higher interest rates and therefore become more attractive than existing bonds previously issued with low interest rates.
As an individual bond holder, I don’t care about such price fluctuations. I receive an annual interest of 3 percent, and eight years later, the face value of 100 francs is repaid to me. All this is transparent.
With bond funds, the situation is different: they do not have expiration dates. They also fluctuate according to interest rates. But it is often difficult to understand why their prices react one way and not the other. Liabilities within the fund expire or are sold. New ones are taken. The composition in the fund is constantly changing, so the annual distribution is always different.
Price fluctuations are even more difficult to understand in mixed funds that contain both stocks and bonds.
Did Gopfried Stutz advise against buying bond funds? No, he didn’t. He simply said: Nothing for him.
Source :Blick
I’m Tim David and I work as an author for 24 Instant News, covering the Market section. With a Bachelor’s Degree in Journalism, my mission is to provide accurate, timely and insightful news coverage that helps our readers stay informed about the latest trends in the market. My writing style is focused on making complex economic topics easy to understand for everyone.
