BondsOnline.com: instant access to and extensive coverage of over 3.5 million stocks, bonds, indexes and other securities covering major and emerging markets and exchanges across the globe.
diversification;
fixed maturity; fixed interest income
Easy to trade; diversification
Cons
more
expensive: higher costs mean lower yields;no
fixed maturity date
bonds are not
as
liquid as funds;investor must manage
bonds are not
as liquid as mutual funds; higher sales charge
than individual bonds
no fixed maturity date; income streams not always predictable
Brief
Definition
managed
portfolio of bonds
individual
securities
fixed
portfolio held in a trust
"basket" of securities typically linked to an index
Maturity
Date
no
date - bonds are constantly bought and sold
set
maturity date. Choice of 1 - 30 years.
trust
buys a set of bonds with fixed maturities
no fixed maturity date; therefore no yield to maturity.
Income
Payments
fluctuating
monthly payments
semiannual,
except zero coupon bonds
investors
choice: fixed monthly, quarterly, or semiannual
payments
fluctuating monthly payments; not always predictable
Liquidity
sell
anytime at current fund value
sell
bonds anytime at current market price. some bonds less
liquid.
sell
bonds anytime at current market price.Less liquid than
funds
liquid;sell anytime during the day at current market price
Diversification
constantly
changing portfolio
individual
chooses from multiple issues
fixed
diversity of investments
instant diversification
Management
professional
investor
managed
monitored,
not managed
most not managed; managed ETF's are appearing
Costs
annual
management; may have a load
one
time charge at purchase or sale
sales
charge at purchase; annual fee
one time charge at purchase or sale; ongoing management fee
Minimum
Investment
varies
among funds
usually
$5,000 and increments of $5,000
often
$1,000
trade as shares on an exchange; prices vary
Reinvestment
dividends
can be reinvested
investor
must do it.
some
trusts alow reinvestment
investor
must do it.
Availability
always
available
limited
by issue
can
be limited by trust
many ETFs for varying strategies
Bond Mutual Funds
Mutual funds pool together capital from many investors
who share similar investment goals. Bond mutual funds
can invest in any type of fixed income security except
CDs. The major categories of fixed income mutual funds
include:
Taxable Bond Funds. These offer a wide range of choices depending on
your investment objectives. Some invest in corporate
securities, some in US Government securities; some
invest in high-risk, high income securities, and
some invest in low-risk, lower income securities.
Tax-Free Bond Funds.
Federal tax exempt bond funds seek to provide high
after tax income and invest in a variety of
municipal bonds issued within a number of different
states. State-specific funds invest in bonds issued
only within one state to obtain current income that
is exempt from federal and state, and sometimes
local, income tax.
Taxable and Tax-Free
Money Market Funds. These provide current income
while seeking to maintain a constant share price.
Unit Investment Trusts (
UIT )
A UIT is a package of income producing securities that
is purchased and held in a trust until the final amount
is paid. UITs invest in a wide range of issues, from
Treasury to corporate to municipal bonds, and once the
portfolio is assembled, the securities are monitored,
but not actively managed.
UITs charge an annual fee that is deducted from the
yield, and pay an initial sales charge to the sales
representative. Sales charges may range from 3.5 to 5%.
UITs are offered on a "dollar price" basis,
with the return expressed in terms of estimated current
return (net interest income divided by public offering
price).
Individual Bonds
You can buy individual bonds for your portfolio similar
to how you buy stocks. Unlike stocks, however,
availability and the prices of bonds vary from dealer to
dealer. Large dealers maintain an inventory of
bonds which may not be available through other dealers.
Bonds are generally offered on the basis of yield to
maturity, which can be hard to follow and compare. While
some yields are quoted in financial pages of newspapers,
these represent yields for only a small fraction of the
available bonds, and represent rates that apply to
institutional-size trades. From the yield to maturity,
prices are calculated and quoted as a bid price (the price at which you sell) and the offer price (the
price at which you buy). Generally, you can expect to
get better prices as the size of the order goes up.
Bond Exchange Traded Funds (ETF)
ETFs, or “Exchange Traded Funds,” represent “baskets” of securities typically linked to an index, and also have the advantages of ease of execution and instant diversification. ETFs and bond funds can offer flexibility and liquidity, especially for actively managed portfolios. ETFs pay out interest through a monthly dividend, while any capital gains are paid out through an annual dividend. ETFs are suitable for particular strategies.
Keep up with monthly, in-depth coverage of fixed income market strategies, commentary, and insights as seen by our sources. Sign up for the free BondsOnline Advisor now!
