52 Simple Ways to Manage Your Money – 27. The Tie That Bonds – Bond Funds
What It is…
A method of investing in the bond market with a pool of money contributed by a number of investors.
A professional manager buys and sells bonds according to parameters set by the specific fund.
How it helps…
Provides diversification by investing in many different companies within many different industries.
Since it is a “debt” instrument, you are paid before the stockholders’ profits are declared.
Potential returns can exceed taxes and the rate of inflation.
Allows you to invest in the bond market with small amounts of money ($100).
Key items to look for…
A fund that fits your goals and objectives.
A track record consistently above average for the last five or ten years.
A professional manager or management team that has been with the fund long enough to earn the track record.
The costs of getting into or out of the fund and the annual fee.
Determine if you arc going to analyze the various funds and make the selection yourself, or if you are going to use an advisor.
The tax consequences of the investment.
Ten hours or more co review your goals and analyze funds (less if you hire an advisor).
Three hours a month (ongoing) to update and review (less if you hire an advisor).
Keys to action…
Determine if you should invest in tax-free or taxable bond funds. (See your tax advisor or review your tax return.)
Determine a dollar amount to invest.
Determine a time frame (three to five years minimum).
Familiarize yourself with the topic of bond mutual funds through magazines, books (such as Creating Your Own Future: A Woman’s Guide To Retirement Planning), or courses.
Investigate at least three bond mutual funds.
Make your selection.
SET IT UP
Review your total financial picture.
Do you have the basics covered (savings for emergencies, etc.)?
STEP ON IT
Check your goals. Will this investment meet your personal needs?
STEP ON IT +
What do you expect from this investment?
Your conversations regarding the bond market.
Your reaction to the potential returns.
Your preference in making the selection yourself or hiring an advisor.
Your willingness to make a three-year (or longer) financial commitment.
But what if …
I make a mistake?
Cut your losses and try again.
At the thought of investing in the bond market…
When I see the value of my investment go up…
When I see the value of my investment go down…
Being responsible for investing means…
Understanding the risks makes me…
At the thought of watching my investment grow…