First, let us go over the types of bonds that are out there in the general sense. There are corporate bonds, which are issued from corporations such as Apple and GE, allowing investors to have returns and the company is able to raise money. Also, there are government bonds, which vary in length and yield and are regarded as the safest investment since the odds of the government defaulting are extremely low at this point.
When looking at mutual funds and ETF’s, you want to know what makes them up. Typically, the less risky funds will have different selections of bonds, which typically less risky. However, you have to watch the ratings to ensure there is a decent probability of being paid back later when the bonds come due. There are two sets of rating agencies, but they essentially look at the same factors. If you invest into a lower yield fund, you would expect the bonds to be safe and less risky. On the other side, if you are investing in a higher yield bond fund, there may be more corporate bonds and the ratings may vary, limiting risk but giving you a greater return.
Bonds are not only used in bonds funds, but also can be utilized as anchors in equity portfolios, providing a cushion of sorts to lower risk levels. There are hundreds upon thousands of bonds out there and it is important to know what they are. The last set of bonds to watch for are municipal bonds, which are issued by towns and cities to finance various items. These are potentially more risks as a community could fail or delay paying the purchasers back. Again, these are rated and typically are not traded on the market where retail investors can view them. In order to see how they work, ask your broker or investing professional and they can show you how they are traded between cities and banks.
Bonds are a crucial part to mutual funds and ETF’s and should be monitored because they can pose risks if they are not watched closely. Not all bonds are safe and should be researched accordingly. If you stumble across funds that have municipal bonds, reach out to the company that manages the fund as request more details. Bonds are an excellent way to balance a fund, but it is important to ensure it complementing the ultimate goal.
Building efficient market-beating portfolios requires time, education, and a lot of computing power!
The Portfolio Architect is an AI-driven system that provides multiple benefits to our users by leveraging cutting-edge machine learning algorithms, statistical analysis, and predictive modeling to automate the process of asset selection and portfolio construction, saving time and reducing human error for individual and institutional investors.
Try AI Portfolio ArchitectEditorial Staff
Nathan Young is a Senior Member of Macroaxis Editorial Board - US Equity Analysis. With years of experience in the financial sector, Nathan brings a diverse base of knowledge. Specifically, he has in-depth understanding of application of technical and fundamental analysis across different equity instruments. Utilizing SEC filings and technical indicators, Nathan provides a reputable analysis of companies trading in the United States.
View Profile This story should be regarded as informational only and should not be considered a solicitation to sell or buy any financial products. Macroaxis does not express any opinion as to the present or future value of any investments referred to in this post. This post may not be reproduced without the consent of Macroaxis LLC. Please refer to our
Terms of Use for any information regarding our disclosure principles.
Would you like to provide feedback on the content of this article?
You can get in touch with us directly or send us a quick note via email to
editors@macroaxis.com