Now that 0% interest rates are a thing of the past, bonds finally pay a decent amount of interest. And with the markets predicting rate cuts in 2024, you have a very good chance of earning a strong return on bonds, as their prices will rise if rates fall.

But I have a big problem with the bond industry.

It’s the way most investors buy bonds: bond funds. Since bond prices move in the opposite direction of interest rates, bond funds work well when rates are falling and the prices of the bonds in their portfolios are rising. But when rates rise, those same bonds fall in price and investors get crushed.

For example, the largest bond fund, the Vanguard Total Bond Market ETF (Nasdaq: BND), dropped from a high of $75 to $68 last year before bouncing in October as the markets began to believe rates had topped out. That’s a drop of more than 9%.

The iShares Core U.S. Aggregate Bond ETF (NYSE: AGG), another large bond fund, fell 9.5% from high to low last year.

Both of these exchange-traded funds (ETFs) are still below where they were a year ago.

The two funds have more than $200 billion in combined assets. That’s a lot of money that retail investors shelled out because they thought bonds were safe.

The thing is, bonds are safe… if you buy individual bonds rather than a fund or ETF.

When you buy a bond fund or ETF, you are at the mercy of the fund manager or the index that the bond is tied to. And if you want to withdraw some funds, you’d better pray that the price is higher than it was when you bought it. Otherwise, you’ll end up taking a loss.

But when you own individual bonds, you’re able to plan accordingly so you know when your cash will become available. If you needed your funds in October 2026, for example, you would buy an individual bond that matures before then.

Best of all, you know that at maturity, each bond is going to be worth par value (which is $1,000) no matter where it traded in the past. At maturity, you will receive $1,000 unless the company has gone bankrupt – which is extremely unlikely unless you’re buying the riskiest of bonds.

If you were to buy the iShares bond ETF I mentioned above, the price could be anywhere by October 2026. It could be at $98, which is where it’s at as I write, or it could be at $105 or $80. If you buy it at $98 and it’s at $80 when you need the money, you’ll collect only $800 for every $980 you invested.

Meanwhile, if you buy a bond that matures in October 2026 for $980 today, you will receive $1,000 in October 2026 – plus you’ll have collected interest along the way.

Wall Street makes it very easy to buy bond funds or ETFs. Buying them is just like buying stocks. It’s about as simple a process as there is.

Buying a bond is a little – but just a little – more complicated. Sometimes, there is no market for a particular bond, meaning your broker will have to work to find a buyer or seller for you. If they can’t, you won’t be able to make the transaction. For that reason, you should only buy bonds you intend to hold until maturity.

If the bond’s price climbs or you want to sell for another reason, you likely will be able to, but unlike with stocks, ETFs and mutual funds, there’s no guarantee there will be a buyer.

You can always call the fixed income desk at your broker if you ever get stuck or have questions. Most fixed income desks have very good customer service, as the representatives are usually bond specialists.

Individual bonds provide income and safety for your portfolio. Bond funds produce income only. There is no assurance that you will ever get your money back from a bond fund.

Stick with individual bonds for the fixed income part of your portfolio.

The post The Big Problem With the Bond Market appeared first on Wealthy Retirement.

I’m a believer in buying individual stocks and bonds, but for investors who don’t have the time or desire to research individual opportunities, exchange-traded funds (ETFs) and other funds are a decent – but often not amazing – alternative.

Many passively managed funds are tied to broad indexes. As a result, they will never outperform those indexes. But because the market goes up over the long term, investing in index funds is a safe, “set it and forget it” strategy. So if that’s what you prefer, index funds are one method you could use.

Most of the time, I don’t recommend investing in actively managed mutual funds or ETFs. They have a long history of underperforming their indexes. For example, if you’re interested in a biotech fund, stick with one that invests according to a biotech index, not one that’s run by a fund manager who’s trying to pick winners by “trusting their gut.”

According to the most recent data, over the past three years, 66% of mutual funds failed to beat their benchmark index. (Maybe you’ll get lucky and pick the 1 out of 3 that does, but the odds aren’t in your favor.)

Furthermore, you pay fees for that underperformance. In fact, the fees can be a reason for the underperformance. If you’re paying a mutual fund 1.5% per year, you’re starting out 1.5% behind the index.

Index funds and ETFs typically have very low fees, which is another reason to stick with them if you do choose to invest in some kind of fund.

But as I said, I believe owning individual stocks and bonds is the way to go.

You pay no fees for buying and selling stocks at most brokers. And with bonds, the fee is priced in. So if you want to buy a bond that’s quoted at $99, that’s what you’ll pay. Most brokers will not charge an additional fee, though there are exceptions, so be sure you understand what commissions your broker charges.

The main reason I prefer individual stocks and bonds to funds and ETFs is you have more control. If a stock is going against you, your stop can get you out before you suffer a big loss, and the decision to sell doesn’t involve any emotion.

But with an index fund, that stock will stay in the portfolio as long as it remains in the corresponding index. And with an actively managed fund, a Wharton-trained fund manager may believe they know more than the market and ride the stock down further – or worse, throw good money after bad.

When you own stocks, you can also take profits when it’s appropriate, whereas with a fund, you have no control or say over what the fund manager does.

I feel even more strongly about holding individual bonds than I do about holding individual stocks. There are some exceptions, such as a closed-end fund trading at a steep discount or an ETF that invests in convertible bonds, but these can be tough for individual investors to find.

For the most part, when it comes to regular corporate and government bonds, you should own them individually. That way, you can decide what maturities make sense for you and you will know exactly how much cash you’ll have available on the maturity dates.

(Bonds have become quite popular right now, and rightfully so. I recently told George Rayburn, our longtime event host here at The Oxford Club, that no matter what the Federal Reserve does next, it’ll be good for bondholders.)

With a bond fund, however, there is no maturity date and your capital is at the mercy of the markets. You may think investing in a bond fund is safe and conservative, but if rates spike, you’ll lose money. And if you withdraw your cash during a period of higher interest rates, you’re going to end up with less than you started with.

That’s the opposite of what we want to see when we invest in bonds.

We invest in bonds for safety. We know we’ll get our money back at maturity – or make a capital gain – because we know the bonds will mature at par value ($1,000) no matter which way the bond market or interest rates move. We’ll get $1,000 per bond at maturity regardless of whether we invested $1,000, $900 or $1,050.

Funds and ETFs serve their purpose, mostly for investors who don’t want to (or are afraid to) make their own investment decisions. But investors who feel comfortable making their own choices and investing in individual stocks and bonds are likely to be better off in the long run – as long as they don’t overtrade and don’t try to time the market.

The post The First Step to Achieving Financial Freedom appeared first on Wealthy Retirement.

The first sentence should have been “Don’t buy bond funds.”

What should the line after that have read?

“The end.”

The writer could have saved himself 700 words, taken the afternoon off and caught a matinee. Instead, he wasted readers’ time showing them how little they’d lose if they bought the “top bond funds” featured in the article.

Why are bond funds near-certain losers when bonds are so important to balancing a portfolio? It has to do with the mechanics of a bond.

When interest rates rise, bond prices fall. Say you buy a bond yielding 5%. The next year, the Fed raises rates a full percentage point. That 5% yield is not quite as valuable in a higher interest rate environment – not when you can get an identical bond for 6%. So the price of the bond falls (increasing the yield).

But none of that matters if you plan on holding the bond until maturity.

If you bought the bond at par ($100) and the price dips to $90, you’ll get only $90 if you sell it – instead of $100. But if you hold it until maturity, you’ll get your full $100. Note that bonds are sold in increments of $1,000 but are quoted at one-tenth the price. So a $1,000 bond that is at par will have a $100 price. A bond that is priced at $90 will be worth $900.

So there’s nothing wrong with owning individual bonds in your portfolio – if you plan on holding them to maturity. In fact, I recommend it.

Bond funds are different.

When you buy a fund, the price of the fund is based on the value of the assets.

So let’s say the bond fund has 1 million shares outstanding and the fund manager buys $20 million worth of bonds at $100 each. The fund price would be $20 ($20 million divided by 1 million shares).

Then interest rates go up, and the bonds decline in value to $90 each. The price of the fund drops to $18. As with individual bonds, if you sell now, you’ll take a loss. But unlike individual bonds, the fund never matures.

Those original $20 million worth of bonds will eventually mature, sure. But the fund manager is unlikely to keep them in the portfolio. They have no reason to.

Fund managers are usually incentivized to beat specific benchmarks, like a bond index. For that reason, they notoriously overtrade their portfolios.

For example, the PIMCO Income Fund (PIMIX) has a yearly turnover rate of 396%, meaning it sells every bond in its portfolio nearly four times per year.

Its cousin, the PIMCO Total Return Institutional Fund (PTTRX), beats that at a whopping 430%, meaning it replaces its entire portfolio more than four times each year. Another large bond fund, the Metropolitan West Total Return Bond Fund (MWTIX), buys and sells its entire portfolio almost five times a year at a 470% turnover rate.

All that trading not only runs up costs but also ensures investors will realize losses as rates go higher.

Bond funds are a nearly guaranteed way to lose money.

It’s not always easy to make money in the market, but it can be easy not to lose it. Don’t buy bond funds.

The end.

Good investing,

Marc

The post A Foolproof Strategy for Losing Money appeared first on Wealthy Retirement.

The first sentence should have been “Don’t buy bond funds.”

What should the line after that have read?

“The end.”

The writer could have saved himself 700 words, taken the afternoon off and caught a matinee. Instead, he wasted readers’ time showing them how little they’d lose if they bought the “top bond funds” featured in the article.

Why are bond funds near-certain losers when bonds are so important to balancing a portfolio? It has to do with the mechanics of a bond.

When interest rates rise, bond prices fall. Say you buy a bond yielding 5%. The next year, the Fed raises rates a full percentage point. That 5% yield is not quite as valuable in a higher interest rate environment – not when you can get an identical bond for 6%. So the price of the bond falls (increasing the yield).

But none of that matters if you plan on holding the bond until maturity.

If you bought the bond at par ($1,000) and the price dips to $900, you’ll get only $900 if you sell it – instead of $1,000. But if you hold it until maturity, you’ll get your full $1,000.

So there’s nothing wrong with owning individual bonds in your portfolio – if you plan on holding them to maturity. In fact, I recommend it.

But bond funds are different.

When you buy a fund, the price of the fund is based on the value of the assets.

So let’s say the bond fund has 1 million shares outstanding and the fund manager buys $20 million worth of bonds at $1,000 each. The fund price would be $20 ($20 million divided by 1 million shares).

Then interest rates go up, and the bonds decline in value to $900 each. The price of the fund drops to $18. As with individual bonds, if you sell now, you’ll take a loss. But unlike individual bonds, the fund never matures.

Those original $20 million worth of bonds will eventually mature, sure. But the fund manager is unlikely to keep them in the portfolio. They have no reason to.

Fund managers are usually incentivized to beat specific benchmarks like a bond index. For that reason, they notoriously overtrade their portfolios.

For example, the largest actively managed bond fund, the PIMCO Income Fund (PIMIX), has a yearly turnover rate of 421%, meaning it sells every bond in its portfolio at least four times per year.

Its cousin, the PIMCO Total Return Institutional Fund (PTTRX), beats that at a whopping 554%, meaning it replaces its entire portfolio more than five times each year. Another large bond fund, the Metropolitan West Total Return Bond Fund (MWTIX), buys and sells its entire portfolio at a 405% turnover rate.

All that trading not only runs up costs but also ensures investors will realize losses as rates go higher.

Bond funds are a nearly guaranteed way to lose money. Even if rates do head higher, you can be satisfied with the higher yields you earn on your individual bonds and know that you’ll get your money back when the individual bonds mature.

It’s not always easy to make money in the market, but it can be easy not to lose it. Don’t buy bond funds.

The end.

Good investing,

Marc

The post Why You Should Never Buy Bond Funds appeared first on Wealthy Retirement.

In Marc’s latest State of the Market video – which aired on Wealthy Retirement‘s YouTube channel yesterday – he addressed a common misconception that costs too many seniors in retirement…

That diligent savers who want to secure wealth in their golden years don’t have the time to waste on bond investing.

In fact, nothing could be further from the truth.

True, bonds are not the James Dean of the market. They won’t often get your adrenaline pumping like fast-paced options trading…

But they won’t cause inexperienced traders the same gut-wrenching losses, either.

And if you ask readers of Marc’s Oxford Income Letter, who just scored a double-digit gain in less than 30 days on their Southwest Airlines bonds, I’m sure they’ll tell you they don’t mind bonds’ stodgy reputation.

The fact of the matter is, when played right, bonds can offer returns on par with some dividend payers. Sometimes even higher…

And unlike shareholders in seemingly secure giants like The Walt Disney Company (NYSE: DIS) – which suffered a May dividend cut that took many investors (but not SafetyNet Pro) by surprise – bondholders don’t get burned when the market goes south.

The highest bond default rate is 4% for the most generous-yielding junk bonds out there.

Investment-grade bonds, on the other hand, deliver as promised 99.82% of the time.

So on the road to retirement, which would you rather have…

A fast-and-furious driver who might get you to your destination in record time but could cause some expensive fender-benders along the way…

Or a professional who is contractually obligated to get you where you need to go on time as safely and directly as possible – and may surprise you with a pleasant shortcut?

I, for one, am not a gambler. My grandparents may have taught me poker games like Texas Hold ’em and Dr. Pepper, but in doing so they also taught me to judge when the reward is worth the risk.

If you are in or nearing retirement, it may pay to ask yourself whether bonds will help you answer this question.

Good investing,

Mable

P.S. Marc also takes this judgment call very seriously. That’s why he trusts bonds with some of the most important savings he has…

Click here to get the full story in his latest YouTube video.

The post How to Collect Safe Income appeared first on Wealthy Retirement.

Perhaps the best place to start in this discussion is to define what an ETF is.

An ETF is a set of securities put together to track a certain index. One of the more popular ETFs, for example, was constructed to track the performance of the S&P 500. This is the SPDR S&P 500 ETF Trust (NYSE: SPY).

Prior to the creation of ETFs, it was very difficult for an individual investor to actually invest in an index – but now ETFs allow an investor to do exactly that. And even though an ETF is referred to as a fund, it trades like an individual security during the day.

In other words, unlike the holder of a mutual fund, the holder of an ETF doesn’t need to wait until the end of a trading day to get the NAV (net asset value) and trade the ETF.

Sounds like the greatest thing since sliced bread, right? An investment with the diversification advantages of a fund, but with the ability to trade like an individual security during the day? What’s not to like?

Not so fast…

The bull market in stocks will turn 11 years old in a few short weeks. And not coincidentally, the explosion in popularity of ETFs has coincided with the rise of that bull market.

Eventually this business cycle will end, the bull market in stocks will end, and investors will experience a stock market pullback (correction of 10% or more) or an outright bear market (correction of 20% or more).

So how will ETFs react when the next stock market crash comes?

I suspect that investors may have a rude awakening concerning the liquidity of ETFs.

It will be hard enough to trade a large fund like the S&P 500 Trust, but with the myriad ETFs that have sprung up – particularly in emerging stock and bond markets – how will investors be able to exit ETFs where the underlying securities are thinly traded?

Good luck getting out of those when all the holders want to head for the exits…

But there is one area of the financial markets that ETFs have helped notably: the bond market. That’s because many bonds – even those from well-known companies with large bond issues – don’t trade frequently.

And prior to the advent of ETFs (particularly bond ETFs), these off-the-run bonds could be difficult to value, not to mention difficult to trade. Bond ETFs have made the bond market more liquid, even when the bonds making up the ETFs are not.

ETFs can make a difference for small investors, as well as for the broader market. And their growth shows that individual investors are very comfortable owning them.

But ETFs have not been tested in a market crash, and when all investors are headed for the exits – even in something like a regional crash in emerging markets where the ETFs are not very liquid to begin with – watch out…

And remember, for the most security, you can count on steadfast blue chip corporates.

Good investing,

Rob

The post Exchange-Traded Funds: The Good, the Bad and the Profitable appeared first on Wealthy Retirement.

Stocks surged to unprecedented heights as excitement about the internet’s promise captured the world’s imagination. It was an era of “hot initial public offerings (IPOs)” featuring unprofitable companies like Pets.com.

These companies went public based on hype, hope and “new-era” metrics like eyeballs. And investors couldn’t get enough of them.

The dot-com bubble was truly a mania. It seemed like everyone in America was trading stocks and bragging about their winnings.

And a few key factors suggest we are a long way from those days…

Stock valuations: Today’s price-to-earnings (P/E) ratios are higher than average, and the so-called Shiller P/E (or CAPE ratio) hasn’t been this high since 1999. But the 10-year Treasury yield was close to 6% in 1999, while it sits under 2% today.

In other words, stocks offer better value than bonds at current levels. As a result, institutional investors are willing to pay more for corporate earnings. The end result is “multiple expansion,” or higher-than-average P/Es.

Inflows into equity mutual funds: “Even with a roughly 30% rise in the U.S. stock market, investors poured a record amount of new cash into taxable bond funds in 2019, and U.S. stock funds saw net outflows” of more than $41 billion, Morningstar reports.

The opposite occurred in 1999 as investors rushed headlong into U.S. equity funds, particularly tech funds.

Sentiment: There’s widespread disbelief in this market. Investors are not wildly bullish on stocks. Otherwise, they would be putting money into equity funds rather than taking it out.

Additionally, the failure of WeWork’s IPO last year and the skepticism around Casper’s initial efforts to go public demonstrate the stark difference between today’s market and 1999.

Those factors tell you it’s just not like it was back in the go-go days of the dot-com bubble.

But let’s go further back in time, to the mid-1990s. History might not repeat, but it often rhymes…

In fact, today’s environment has more similarities to the heady 1994 to 1996 era stock market than you might expect – and certainly more similarities than it has to the market peak of 1999 to 2000.

• In 1994, the market struggled as the Fed was in the midst of a tightening cycle. The market surged 32% in 1995 after the Fed started easing. A similar dynamic occurred in 2018 and 2019.
• The market also struggled in 1994 because of rising trade tensions between the U.S. and Japan, the latter then the world’s second-largest economy. In early 1995, President Clinton threatened 100% tariffs on certain Japanese cars.The market was on tenterhooks until the U.S.-Japan trade dispute was resolved in June 1995.
• Like President Trump, President Clinton faced partisan investigations back then – and eventually impeachment.
• During the mid-1990s, the U.S. economy was the world’s strongest, while the global economy struggled.
• Large cap stocks outperformed small cap ones, and U.S. stocks outperformed international ones during this era.

That said, it wasn’t all smooth sailing. Stocks got hit by a series of shocks between 1996 and 1998, most notably the Thai baht crisis, Alan Greenspan’s infamous “irrational exuberance” speech, Russia’s debt default and the blowup of the Long-Term Capital Management hedge fund.

Yet despite these periodic setbacks, the market marched steadily higher in 1997, 1998 and 1999. Notably, Greenspan learned the lesson from his “irrational exuberance” comment and became the market’s biggest supporter after 1996. Then, as now, the Fed’s easy money policies helped the stock market hit record highs.

The Fed’s “pivot” last year was more than just a change from raising to cutting rates. Last year marked a generational shift in the Fed’s focus. Under Jerome Powell, it is now more concerned about deflation than inflation.

“Based on what the Fed has said, you know they’re not going to raise rates,” Tony Dwyer, Canaccord Genuity’s chief market strategist, says in the latest episode of my podcast. “They’re not going tighten policy. That’s why valuations are going up.”

How much higher valuations go remains to be seen. But if the parallels to the mid-’90s continue to play out, the market is going a lot higher before the music stops. It will eventually stop, of course – just like it did in 2000.

But the worst mistake investors can make is to think “this will end badly,” according to Dwyer. “Because as soon as you say that, you’re going to invest too defensively.”

Investors should remember that market déjà vu is not always a bad omen. Take advantage of this familiar atmosphere by using any market setbacks to add exposure to economically sensitive industries like financials, industrials and technology.

If you’re going to relive the past, you might as well profit from it.

Good investing,

Aaron

The post Your Second Chance at the Dot-Com Bubble appeared first on Wealthy Retirement.

For those who are unfamiliar with closed-end funds, here’s a brief primer…

A closed-end fund is like a mutual fund, except it trades very differently.

A mutual fund trades only at its net asset value (NAV) at the end of the day.

So if a mutual fund has $100 million in assets and 10 million shares outstanding, it will trade for $10 per share. If the next day its assets climb to $105 million, the fund will trade at $10.50.

A closed-end fund trades like a stock. Just like the stock of a regular company has a book value per share and will trade above or below that book value, the same goes for a closed-end fund.

But with closed-end funds, the book value per share, or in this case the NAV, will be an important metric to consider.

Because closed-end funds trade like stocks, they will trade higher than the NAV (at a premium) or lower (at a discount).

For example, say that a closed-end fund has $100 million in net asset value and 10 million shares. Its NAV is $10 per share. But the closed-end fund may be trading at $10.50, which would be a 5% premium.

In other words, you’re paying $1.05 for every $1 in assets.

On the other hand, if the closed-end fund were trading at $9.50, it would be trading at a 5% discount. So you’d pay only $0.95 for every $1 in assets.

This is an important thing to consider because the fund could perform well while its price does not. The NAV could rise, but the discount could steepen.

Theoretically, as the NAV rises, so should the price; and the discount should shrink, or the premium should increase. But it doesn’t always work that way.

Back to my opinions on closed-end bond funds…

Closed-End Funds in Today’s Environment

As I mentioned in a previous article about bond funds, I don’t like them in this low interest rate environment, even if they have attractive yields.

That’s because when interest rates eventually rise, bond funds will lose value. So the NAV of closed-end bond funds should decrease as well.

That being said, not all closed-end bond funds are created equal. Some hold convertible bonds, which convert into stock. Some own variable-rate loans, whose interest rates will rise if rates in general do the same.

Some trade at steep discounts, hedging some of the risk of declining NAV.

For example, one closed-end bond fund that I like is the Nuveen Floating Rate Income Fund (NYSE: JFR). It is a current recommendation in my Oxford Income Letter’s Retirement Catch-Up/High Yield Portfolio.

The fund invests mostly in adjustable-rate senior loans. At least 65% of the loans must be secured with collateral.

It yields 7.8%, pays a monthly dividend and trades at a sharp 13% discount. That means you’re buying assets for $0.87 on the dollar.

That’s a nice buffer in case NAV doesn’t move. In fact, you could get a nice return if the discount tightens even if NAV stays flat. Of course, the opposite can happen too.

But I like the fund’s steep discount, monthly dividend and high yield.

If you’re looking for a closed-end bond fund, I’d consider only those that are trading at steep discounts. You certainly don’t want to buy an overvalued fund in this low rate environment.

Good investing,

Marc

The post Closed-End Bond Funds: What You Need to Know appeared first on Wealthy Retirement.

The first sentence should have been “Don’t buy bond funds.”

What should the line after that have read?

“The end.”

The writer could have saved himself 700 words, taken the afternoon off and caught a matinee. Instead, he wasted readers’ time showing them how little they’d lose if they bought the “top bond funds” featured in the article.

Why are bond funds near-certain losers when bonds are so important to balancing a portfolio? It has to do with the mechanics of a bond.

When interest rates rise, bond prices fall. Say you buy a bond yielding 5%. The next year, the Fed raises rates a full percentage point. That 5% yield is not quite as valuable in a higher interest rate environment – not when you can get an identical bond for 6%. So the price of the bond falls (increasing the yield).

But none of that matters if you plan on holding the bond until maturity.

If you bought the bond at par ($100) and the price dips to $90, you’ll get only $90 if you sell it – instead of $100. But if you hold it until maturity, you’ll get your full $100. Note that bonds are sold in increments of $1,000 but are quoted at one-tenth the price. So a $1,000 bond that is at par will have a $100 price. A bond that is priced at $90 will be worth $900.

So there’s nothing wrong with owning individual bonds in your portfolio – if you plan on holding them to maturity. In fact, I recommend it.

Bond funds are different.

When you buy a fund, the price of the fund is based on the value of the assets.

So let’s say the bond fund has 1 million shares outstanding, and the fund manager buys $20 million worth of bonds at $100 each. The fund price would be $20 ($20 million divided by 1 million shares).

Then interest rates go up, and the bonds decline in value to $90 each. The price of the fund drops to $18. As with individual bonds, if you sell now, you’ll take a loss. But unlike owning individual bonds, the fund never matures.

Those original $20 million worth of bonds will eventually mature, sure. But the fund manager is unlikely to keep them in the portfolio. They have no reason to.

Fund managers are usually incentivized to beat specific benchmarks like a bond index. For that reason, they notoriously overtrade their portfolios.

For example, the largest actively managed bond fund, the PIMCO Income Fund (PIMIX), has a yearly turnover rate of 472%, meaning that it sells every bond in its portfolio at least four times per year.

Its cousin, the PIMCO Total Return Institutional Fund (PTTRX), beats that at a whopping 723%, meaning it replaces its entire portfolio more than seven times each year. Another large bond fund, the Metropolitan West Total Return Bond Fund (MWTIX), buys and sells its entire portfolio almost three times a year at a 255% turnover rate.

All that trading not only runs up costs but also ensures investors will realize losses as rates go higher.

Bond funds are a nearly guaranteed way to lose money. Even when rates do head lower, as we might see in the coming months, at near record lows it is likely to be temporary, and you can be satisfied with the higher yields you earn on your individual bonds – and see lower prices as a buying opportunity.

It’s not always easy to make money in the market, but it can be easy not to lose it. Don’t buy bond funds.

The end.

Good investing,

Marc

The post To Make Money in Bonds, Avoid This Strategy appeared first on Wealthy Retirement.