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Why Bond Mutual Funds and ETFs No Longer Work

October 4, 2021 By E.J. Smith

By carmen2011 and FOTOGRIN @ Shutterstock.com

OK, third-quarter report cards are in, and investors want to know how they did. But perhaps just as important, they want to know the WHY behind the performance. When it comes to mutual funds and ETFs, there’s a better way to go, especially when it comes to choppy markets, which have been tough as of late. Why are bond prices down? Because interest rates have risen just a tiny bit, and bond prices move in the opposite direction of rates.

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Over the quarter, especially the last few weeks or so, interest rates have risen enough to lower prices for bonds this quarter. But we’re talking about a tiny increase in rates, not a huge move which would be more concerning. What will happen if rates really kick higher? You can bet some bond investors will head for the exits as they always do.

You don’t want to be stuck investing in products where you could be the victim of a huge exodus. Because when you invest in mutual funds and ETFs, oftentimes your fellow passengers are huge pensions funds and endowments that have a bit of a longer runway. That’s why I want you to own your bonds outright, much like you own your own future. You decide how it will unfold.

Action Line: When you own your own bonds, you decide when to sell or when to hold until maturity. You’re not at the whim of a fund manager you’ve never met or a big-time investor who doesn’t even know you exist. If you’re concerned, it’s probably time we talk.

Originally posted on Your Survival Guy. 

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E.J. Smith
E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West (RIP JB) and Paris.

Please get in touch with E.J. at ejsmith@youngresearch.com

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