Bond Positions Weight

Bond Percentage

=

% of Bonds

in the fund

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.