Why invest in bond funds when you can invest in a few CDs with a likely similar return?

My broker keeps talking up bond funds. But I still can't see what they have to offer over buying a few CDs with different maturities. When I look at the return for bond funds they all look pretty bad. Thoughts?

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Bond Funds are a great choice during the years that interest rates go down (yes I mean.... down).They're also a good choice for a good diversification (in addition to CD's).

You need to have a better understanding of investing. This will save you from costly mistakes (over years of investing). Once you learn.... you'll find that Vanguard and several other Mutual Fund companies offer great products with no commission. It makes no sense to pay a full years interest to buy a Bond Mutual Fund. It makes less sense to buy a high fee ("B" Fund) either.

You may want to keep your broker. Sounds like they're trying to point you in the right direction. LEARN!

I agree, but CDs do not have great returns either. I use a CD at my bank, just big enough to get me free checks and safe deposit box. No load Real Estate funds have been best for me, TAREX and UMREX

First of all...if you have a broker and don't trust his/her advice, you are wasting your time and his/her's. Most financial advisors would not put so much attention into managing your account if you're not going to take direction. An advisor's most valuable resource is not your money...it's their own time.

Secondly, when you look at stated returns of a bond fund you are looking at the NAV = Net Asset Value. That's the value of the fund if you were to liquidate it. That will always go up and down because bond fund managers have to sell bonds (at a gain or a loss) in order to have cash available when people liquidate their funds. The return on investment becomes significantly higher if you reinvest your dividends; however, it's not acceptable to show those return numbers to the public.

If you're buying a bond fund you're not buying it for capital gains. You are buying it for the income. So if you have a good bond fund returning around 5% per year that means the fund manager is making money on the value of the bonds themselves (which is gravy). You really should be focusing on the yield of the bond fund rather than the annual returns.

Also, CDs are what I call project accounts. You buy a cd when you have a project for the money when the cd matures. CDs have risk that most people don't see.

1. Interest rate risk: You buy a cd today and interest rates increase tomorrow. I saw clients with long term cds they bought in 2004 that are at 3%. That was a great rate 2 years ago, but not for a 5 year cd compared to today's rates.

2. Reinvestment risk: You get a great 6 month cd at 5.5%, when it matures interest rates have dropped to 4%.

I hope I've answered your question. I'm not a fan of CDs and I advise a lot of my clients to put their short term money into money markets or bond funds...tax-free bond funds if they are in a high tax bracket.

P.S. Reconsider why you have a broker. If you don't trust his advice, it is a fruitless relationship on both ends. You would hate to get a call from some rookie to find out that your account has been reassigned because your broker didn't see any value in maintaining you as a client. If you have a successful broker...it will happen at some point.

The average broker that has 10+ years in the business has about 200 - 250 clients. Studies have shown that the broker can be more successful by trimming the bottom 20% because they take up a lot of time for very little return.

Think about it!

I agree. There is no security in bonds, either. And the gov't keeps lengthening the rate of maturity. CDs with a 2 to 4 year maturity rate generally have very high yields. That's what I would go with.

Bonds have a likely return which could be higher. But CDs are a sure thing, so it depends how much you're willing to risk. Bonds are a lot more of a long term for something, that like you say, might work out to what you could get in like a 24 month CD. This is one of the main reasons why bond accounts are becoming so increasingly unpopular. Many large insitutions don't even process bonds anymore!

CD,s are OK however you can achieve better appreciation of your capital with a reasonable degree of risk in the precious metals market. See below for more information:

http://preciousmetalsinvesting.blogspot.com/

Because the price of bonds go up as the price of stocks goes down. Then rates are moot. You just want to sell off the bonds while the bond price is high... forget about the bond rates.

Ok, really... You are pretty much clueless when it comes to investing, because...

YOU SHOULD NOT BE GETTING INVESTMENT TIPS FROM A BROKER!

They make commision of each sale and get kick backs from different equities at different times. The do NOT have your long term best interest in mind. Go get a financial advisor who only gets flat fees and takes 1% of your total account balances per year. Then they make more money as you accumulate more wealth.

You are nowhere near the level of savy you need to be buying bonds for a low price in a bear market and timing the sell off of your bonds assets as the stock market bottoms out and starts to turn back up.

I think it is just best for you to keep your money in CD's until you learn a LOT, LOT, LOT more about money!!!!!

Right now you are a fool soon to be parted from all of your money.

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