Money

Published on April 20th, 2013 | by AnnieLucas

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Can You Earn an Income with Bond Mutual Funds?

If you are looking for a super low-risk investment option, then you should consider bond mutual funds. Generally speaking, bonds are the safest way to go in the world of mutual fund investing. But, low-risk investments often equate to low returns. Can you really earn an income through bond mutual funds? The answer to that question depends on how well you are willing and able to research, and how much money you want to earn.

Higher than inflation. An investment is a bad investment (meaning, it will result in negative returns) if the rate of return is less than inflation. Believe it or not, there are investment instruments that fit into this category; they generally include CDs, but the occasional bond mutual fund also runs this risk. Therefore, the important thing to remember when sizing up your bond mutual fund options is that, even if the investment is 100 percent safe, it is simply not worth it if your return isn’t going to be higher than inflation.

Bond funds to invest in. If you are looking for bond mutual funds that have a proven track record of success, then your best bet is to ask the experts. Financial columnist Larry Hungerford, PhD, recently published his top-ranked bond mutual fund investments, and there is nothing stopping you from taking his advice. Hungerford suggests the DoubleLine Total Return Fund, the Met West Unconstrained Bond Fund, and the Fidelity New Markets Income. All of these funds have a history of positive returns, sometimes upwards of 20 percent per year.

Getting around the inflation issue. There is no way to ensure that inflation doesn’t rise above your modest rate of return when you invest in low-risk bond mutual funds. However, there is a way to get around this risk. Research floating rate debt funds to find an option that works for you. These funds provide greater returns by investing in higher-risk business startups, and they tend to withstand inflation risks. Hungerford recommends the T.R. Price Floating Rate Fund, if you are interested in exploring this bond mutual fund investment avenue.

Bond mutual funds are an extremely safe investment. However, they are also relatively low yield in exchange. It is possible for you to earn an income–even if just a modest one–with bond mutual funds. The trick to making positive returns in this market is to stay conscientious of the financial risks associated with inflation, and to do your research to find the best bond mutual fund for your needs, goals, and individual circumstances.

Want to learn more about investing? Follow some of the greats, like Tim Sykes, read books, and read about it as much as possible.


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