Bonds versus Bond Funds

What you need to know about the risks of fixed income investing.

Whether to invest in individual bonds or bond funds is every investor’s personal decision based on investment objectives and factors that apply to his or her particular situation.

In general, bonds offer a predictable income stream and return of principal at maturity. Individuals usually invest in multiple bond issuers for diversification, to create availability of funds at different times in the future and/or minimize exposure to any given creditworthiness of an issuer. A bond investor wants to know what he owns, for how long and what his return will be if held to term. In general, bond funds are pools of bonds that are professionally managed for total return. The investor can expect variable income flows and bond funds do not have a defined term. The total return is dependent on the ability of the money manager to manage the portfolio. However, it is important to note that both of these investments are subject to risks which includes interest rate risk which affects the value of both bonds and bond funds. In general, bond funds provide potential for current total returns and are subject to variable principal value. Bonds create a predictable income and known value at maturity. In today’s low interest rate environment and since fixed income investments have had such a strong performance, it is more important than ever to ask yourself: “Do I want my investment professionally managed for total return or do I want to know that if I purchase a diversified quality bond portfolio I will be able to predict what my return will be and when my funds will become available?” However, simple asset allocation and diversification will not protect investors from losses. As always, the best place to start is with advice from a professional Raymond James Financial Advisor who can assist investors in choosing investments that best fit their own investment objectives.

Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. Raymond James Financial Services, Inc., member FINRA/SIPC. Investors should carefully consider the investment objectives, risks, charges and expenses of bond funds before investing. The prospectus contains this and other information about the funds. The prospectus is available from your financial advisor and should be read carefully before investing. More details are available in a Guide to Mutual Fund Investing at Raymond James.

The author of this material is a Trader in the Fixed Income Department of Raymond James & Associates (RJA), and is not an Analyst. Any opinions expressed may differ from opinions expressed by other departments of RJA and are subject to change without notice. The data and information contained herein was obtained from sources considered to be reliable, but RJA does not guarantee its accuracy and/or completeness. Neither the information nor any opinions expressed constitute a solicitation for the purchase or sale of any security referred to herein. This material may include analysis of sectors, securities and/or derivatives that RJA may have positions, long or short, held proprietarily. RJA or its affiliates may execute transactions which may not be consistent with the report’s conclusions. RJA may also have performed investment banking services for the issuers of such securities. Investors should discuss the risks inherent in bonds with their Raymond James Financial Advisor. Past performance is no assurance of future results.

This communication is intended to improve the efficiency with which Financial Advisors obtain information relevant to their client's taxable fixed income holdings. This information should not be construed as a directive from the RJ&A Taxable Fixed Income Department to buy or sell the securities noted above. Prior to transacting in any security, please discuss the suitability, potential returns, and associated risks of the transactions(s) with your client. For additional disclosure information on any security listed in this publication, please contact a Raymond James financial advisor.

The information contained herein has been prepared from sources believed reliable but is not guaranteed by Raymond James & Associates, Inc. (RJA) and is not a complete summary or statement of all available data, nor is it to be construed as an offer to buy or sell any securities referred to herein. Trading ideas expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation or needs of individual investors. Investors are urged to obtain and review the relevant documents in their entirety. RJA is providing this communication on the condition that it will not form the primary basis for any investment decision you may make. Furthermore, because these are only trade ideas, investors should assume that RJA will not produce any follow-up. Employees of RJA or its affiliates may, at times, release written or oral commentary, technical analysis or trading strategies that differ from the opinions expressed within. RJA and/or its employees involved in the preparation or the issuance of this communication may have positions in the securities discussed herein. Securities identified herein are subject to availability and changes in price. All prices and/or yields are indications for informational purposes only. Additional information is available upon request.