I took this as the “excuse” for not investing in junk bonds (despite that is part of the market). They also do not want investors to bond pick (like they do not want stock picking). Sadly, long-term bonds are also risky (because of inflation); but BND has it, so it is supposedly “justified”.Bond funds are risky, as myself and others have discovered recently. I reviewed the Wiki perspective on bonds to see where it led me astray. Here is a quote from the Wiki: "You want your risks on the equity side, not the bond side." This is actually good advice and one I follow currently. I currently own some I-bonds. Unfortunately the article recommends bond funds, which are risky. "You should generally own bond funds instead of individual bonds, for convenience and diversification." I'd suggest the Wiki section on bonds be rewritten to emphasize the risk aspect of bond funds.
We must understand that long-term nominal bonds are risk assets for individual investors. With that in mind, a general bond fund acts like a combination of cash and long-term bonds; it is a cushioned way to take that risk. It acts as a “ballast” only because some of the holdings do actually act as such; the rest do not. It is “safe” because some of the holdings are “safe”; the rest are not.
Because I actively manage my short-term fixed-income and only use funds for speculative-grade bonds and long-term bonds, I can definitely say that my use of bond funds are for taking risks.
I do not trust everything written here.
Statistics: Posted by secondopinion — Tue Dec 10, 2024 10:38 am