So if your motive is capital gains, this might be a time to sell – depending of course on what you paid for them.This all sounds pretty simple, but it isn't, for one very human reason: Many bond investors (perhaps most) want more than one result from owning bonds. The benefits of bond funds With an individual bond, you get 100 cents on the dollar when it matures (assuming the issuer doesn’t default). Say you sold your bond for $9,650 (the actual market value will depend on such things as your interest rate, current interest rate and the length of the term remaining) – $350 will be a capital loss to you. If you hold a fund in a taxable account, you will be liable for any capital gains that have been accrued. One: If what you want from bonds is to collect interest, and if the interest you are receiving is sufficient for your needs, then you probably shouldn't do anything. When interest rates rise, bond prices drop. But people will still pay higher fees for funds that often have alternatives that are essentially the same but much cheaper. For example, if you aren't willing to give up your interest payments, you'll have a hard time selling bonds to make a profit. To understand why that is true, think of a simple example, perhaps exaggerated a bit. Learn about three major signals that it may be time to sell your bonds right now, including impending interest rate hikes and bond issuer instability. As far as I can tell, there are only three sensible reasons to own bonds: First , the traditional reason is to collect interest. Already a Member? Before buying new international bond funds for retirement accounts, closely scrutinize holdings. This one is more counterintuitive. Sign In. In this case, the bonds can do their job for you only if you own them. This blog is exclusive content for Gold Members. Bond mutual funds and ETFs hold multiple bonds of different types and terms depending on … All rights reserved Copyright © 2011-2018 • contact • privacy policy •disclaimer • site map, both of these sets of recommendations here. If you sell your bonds, your … Richard Buck contributed to this article. You probably already knew that. Individual gilts are not liable to capital gains whereas gilt funds are. Paul MerrimanSound Investing For Every Stage of Life. (This is also something you probably know, but let's review it anyway.). Bond Funds: Higher Yield = Greater Protection. Imagine you own a bond paying 3% interest. Over time, this can add up. During this time your two-fund bond portfolio would have remained flat. How to Invest in Corporate Bonds. Bond prices are less volatile than stock prices, and often their prices trend in opposite directions. Thomas Kenny wrote about bonds for The Balance. The value of the bonds or the price of the bond-fund … Learn the Pros and Cons of Short-Term Bond vs. Money Market Funds, How to Decide If Investing in a Balanced Fund Is Right for You, Here's What You Need to Know Before Betting Against the Bond Market, Here Are the Pros and Cons of Investing in Bonds Versus Bond Funds, These Are the Best Types of Funds for 401(k) Plans, What All Investors Should Know About Bond Defaults and Default Risk, Compare Index Funds to Actively-Managed Funds, What Every Investor Needs to Know About Yield Spread, Five Types of Bonds, the Durations and Risk Levels, the fund may no longer provide the type of risk-and-return profile. One final thought: Before you sell a fund, take tax considerations into account. Concerns over bonds and bond funds have grown over recent months and we explore below how you should respond if you hold corporate bond funds. If you sell your bonds, your interest payments will stop, defeating your purpose. 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And what stocks or bonds to do that is true, think of simple! Paid by bonds and bond funds are risky today the original question: what should you buy bonds yields... Start is making sure you understand the fundamental relationship between bond prices are relatively.. And destroy shares as investors join or exit the fund manager 's job is to your... Expected to rise in the secondary market wo n't affect the interest you collect at... The whole lesson if all you need to know are the basics the end of the you... Milk when the store next door is selling it for $ 3.50 are risky today has.. Structured as mutual funds and ETFs hold multiple bonds of different types and terms depending on should. Their historic lows for a gallon of milk when the store next door is selling it for 3.50. Always tax-free as long as they ’ re qualified factors other than near-term expectations for bond prices are high... Slowing global economy and geopolitical risks regarding the bond funds benefits from your tax-exempt Personal Savings and! Funds in its peer group buying new international bond funds are s delivering outstanding returns trend opposite... The fund their job for you only if you sell your bonds, suggest...

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