Bond Funds - What You Need To Know

While people are getting to grips with owning single bonds, particularly now that yields are higher, understanding a bond fund can be much more challenging. In this video,I address the most frequently asked questions about bond funds: What drives their price, their income and their risks and returns?

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Timestamps
00:00 Introduction
00:38 Most Common Questions
01:19 Difference Between Single Bonds & Bond Funds
02:21 Single Bonds
03:17 Why Buy A Bond Fund?
04:37 Safest of All: Money Market Funds
07:59 Bond Fund: What's in it?
11:13 What if yields rise/fall?
15:07 Why did my bond fund lose so much money?
15:32 Why didn't it hedge against a stock market fall?
15:58 What is the income & how does it change?
16:45 Why hasn't the fund's income risen with yield?
18:28 Corporate Bonds
20:35 Emerging Markets Sovereign Bonds

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DISCLAIMER
All information is given for educational purposes and is not financial advice. Ramin does not provide recommendations and is not responsible for investment actions taken by viewers. Figures that are quoted refer to the past and past performance is not a reliable indicator of future results.

[earthling]

One of the most informative and well communicated videos on Bonds. Thank you.

[bsarva]

🎯 Key Takeaways for quick navigation:

00:41 🤔 *Bond funds introduce uncertainties compared to single bonds, such as varying income, unknown future prices, and uncertain yields.*
06:13 💰 *Money market funds offer a cash-like rate of interest with low risk, providing flexibility and easy liquidation.*
13:35 📉 *The effective duration of a bond fund is crucial for assessing interest rate risk and volatility; higher duration means more risk.*
14:59 🔄 *Pay attention to bond fund duration based on expectations for interest rate movements; longer duration for falling rates, shorter for rising rates.*
20:34 🌍 *Corporate bonds and Emerging Market bonds offer additional income but come with credit risk; assess compensation for risk and consider the current credit cycle.*

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[freeroamer]

I've always been a bit confused by bonds vs bond funds. Commentators will often use them interchangeably which can be very misleading as you've pointed out! Thank you!

[mateuszg]

Thanks Ramin for another amazing video. I think this one about comparing bonds and bond funds is the best and most informative I've came across so far. Initially, I assumed they were the same when I started delving into investment world few years ago. It's crucial for pensioners in particular to grasp the distinctions to avoid potential financial pitfalls.

[Oldtimerider]

Thank you, you posted this just when I needed it most

[goober-llwx]

I complained to VG that the UK site does not show a bond funds convexity or average duration, unlike the US website. They said they would look into adding it! 👍

[Oldtimerider]

This helps me understand Warren Buffett’s advice to his widow: short term government bonds only

[duberm]

Gov not responsible with spending. It sounds very familiar 😢. This is the best video about bond funds. Simple and clear

[markojokanovic]

My first video on this channel was about annuities. I subscribed half way through the video. And now I'm back for more financial wisdom. Please keep the good work.
Greetings from Canada

[MadderPrinciple]

Thanks so much Ramin, this video demonstrates why so much financial advice is flawed. People are told that adding bonds to a portfolio reduces volatility and that you should do this as you get older to de-risk your portfolio. However, as you have shown this is not necessarily true. If you are able to purchase single bonds (credit worthy of course!) you can make predictable returns. However, with bond funds you never really know where you are, unless you have knowledge of the bond lifecycle within those funds. This inherent uncertainty is not appreciated by most retail investors. Could you do a video on aggregate bond funds, these seem good investment entities in their own right, providing a balance of both corporate and government bonds, but I could be wrong? I think I need to sign up for one of your courses on bonds!

[mr.craige.whittington]

A brilliant comprehensive informative explanation of global bond funds.

[anchorpoint]

Masterful explanations, as always, on what can be a very confusing and poorly understood area. Thank you again Ramin.

[josefarrington]

15:32 So if inflation goes down, the fed rate goes down, and the lower fed rate causes the newly issued long term bond coupon to go down. Hence, a bond fund with a high maturity(e.g. 10 years) should go up, because the price of the current bonds held by the fund go up?

[kevink]

Fabulous video !! One other upside to owning a bond fund in rising rates is that the reinvestment of the fund's distributions will enable us to buy more shares at a discounted price... so that when rates drift back down to normal, we get a nice capital gain. p.s. your conveyor belt analogy is perfect... thanks for the video.

[diegomartin]

Does the income from single bonds, bond ETFs and money market ETFs count towards the PSA or is it taxed as dividends and capital gains?

[jake]

Thank you Ramin, this was excellent. I've been thinking about these questions for a while!

[DavidLee-uhxz]

I always enjoy your content but another commentator who I also follow has today alluded to Money Market Funds being a potential bubble with 30% being liquidity being insufficient in the event of a market shock.

Closer scrutiny of the fund I am in shows it is very light on Government Bonds but heavy of short dated "investment grade" corporate notes and CDO's.

Presumably the risk of significant redemptions resulting in a fire sale of assets is not restricted to Money Market funds but are they more vulnerable than others funds - say Vanguard 20%?

[odourboy]

As a retiree, if I wanted to add bonds/bond funds to a taxable account along with equities to reduce volatility, individual bonds or fund(s) and at what risk/duration would be preferred?

[mikedearden]

When is the best time to buy a bond etf? When rates are high about to turn down, ? Then you get higher income and capital appreciation?

[johnkennedy]

Thank you for sharing knowledge on bonds. Buyer beware at all times.