Not All Bond Funds Are Created Equal

When you buy a bond you are essentially loaning a company or government money and they promise to pay you back plus interest. The less the world believes that entity will pay you back the higher the interest rate goes. When you buy bond funds you are buying a group of investors who specialize in picking bonds that they feel are offering too much interest for their actual risk level just earning a higher rate of return than the average bond.

So Cant I Just Pick any Bond Fund and Call it Good?

Not exactly, there are three primary factors that determine if a bond fund is good for you.

1. Rate of Return - If a bond fund has historically returned 1 per year than you could do better with your eyes closed and walking into any bank. Performance matters, it is your money so dont settle with any fund just because its convenient. This often happens in 401ks or IRAs where you might not have as many choices.

2. Fees - If a fund specializes in Treasury Bonds and charge you 1 of your account per year for the privilege than youre being gouged for a relatively simple process. However, if they are rotating many classes of bonds and are showing a constant 5 or 6 per year with little drawback and they are charging 1 than this may be a great fund.

3. Your Cash Needs - If this fund is for your retirement income funds than you may want a fund that has little limitations on withdrawals because you need the money to live off of, however, if its just a saving plan for a larger project than highly restricted with low fees may be a better choice.

Choosing a bond fund is generally considered insignificant to many high fueled stock investors, but an extra percent or two return with stability is huge to the longevity of anyone's investing plan.