Bond funds are normally very popular, they are even more now with savers and investors looking for safe places to put their money that might pay a few cents more than regular savings or even CD's. There are many categories of bonds funds, US Treasuries, Corporate, High Yield, Municipal, Emerging Market, and the list goes on. There are also two types of funds within the categories, index and managed funds. I have never owned and single bond fund other than corporate and only then it is an index fund. Here is why.
First off let's be clear as I mentioned in a previous posting on this subject buying a bond or bond fund at current interest levels is money suicide. You are buying bonds or bond funds at the height of their value and if you sell later on the chances are you will be selling at the bottom of their value. There are small exceptions with higher yielding municipals, but careful selection is very important with municipals. There are many other places to find safe yield now.
Bond funds typically buy bonds on a regular basis as funds come in from investors. Since this is a ongoing buy they buy bonds during periods like now when purchase is not wise and other times when purchase is wise as during times when interest rates are at a zenith. So it all evens out for the most part. Still not a great purchase, but at least better than all right now. Unfortunately investors do as noted above and pile into bonds funds just when it is not wise and bail out when it is wise since usually bond interest rates peak when stocks are doing their best. Investors typically want some of the stock action so they sell bonds to buy stocks. Even if you are long term holder you tend to take your hits along with everyone else, just to a less degree. Bonds fund must invest funds as they come in and sell bonds as they cash out. So in all stay away from bond funds for the most part. Chances are the current low or lower interest rate environment is with us for awhile so the more you put into bonds funds now the more value you will lose later on.
Now there is one exception to this rule and that is when you buy the right type of bond fund. Managed bond funds as all funds buy and sell not only when investors are cashing in and out of the fund, they also try to buy and sell when they believe they have a good buy and sell accordingly . This rotation and churn costs money and you the bond fund investor pay for it. The average cost of managed bond funds is .98% or about 1.0% of your take here and when rates get down like they are now the cost is the same so your interest paid is hit even harder. Frankly paying this kind of fee for a bond fund even when interest rates are higher is foolish since I can not see how anyone should be paid to "manage" a bond fund. But trust me there are people who will pay for it and "managers" who will take their pay. Add in that many of these bond funds have up front loads and you get hit even more.
The only bond fund I have owned and currently own is a index bond fund. Yes, I know some people and their advisors cringe when someone says index fund. But index anything for the most part for stocks and bonds is the way to go for long term investors. It is appropriate to put money in managed stock funds, but only as speculative plays not for long term holdings. Managers of stocks and bonds for the most part have proven over decades they can not perform much better than the index and when they do you pay a nice high fee to get it both in good and bad years. Index bond funds hold the same bonds for long periods of time since they are matching an appropriate bond index. In any case if you buy index bond funds you get a much lower fee since you are not paying a high priced manager, good index bond funds average .22% which is just under 1.0% lower than managed funds. When investing in bond funds 1.0% of interest is serious money.
Lastly let me suggest if you are considering an index bond fund consider the cheapest operator which is Vanguard.
Full disclosure I own index bond funds in Vanguard funds and also JNK a bond ETF for reasons unrelated to this article, which is for longer term investors. I also own individual NC municipals.
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