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by Pastaman on June 5th, 2003

Pastaman

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Are bonds or mutual funds a safer long-term investment?

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Answers. 7 helpful answers below.

  • by philosopher-saint on April 9th, 2008

    philosopher-saint

    Definitely oughtta "cost average" and go w/ "bond funds"! ;-)

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  • by Jackson Miller on March 2nd, 2004

    Jackson Miller

    If by "safe" you mean "low risk", most bonds are safer than mutual funds which usually contain a mix of stocks, bonds, and other investments. Since both bonds and mutual funds have varying degrees of risk, some low-risk mutual funds will be safer than high-risk bonds.

    Bonds issued by the U.S. government are commonly known as "risk-free", since the U.S. is a sure creditor. Bonds issued by other municipalities have a slightly higher risk -- every once in a while a local municipality will go bankrupt. Bonds issued by other entities, such as corporations, have varying degrees of risk.
    Even though bonds (even U.S. bonds) may be low risk, inflation can severly reduce the actual return on any fixed-income bond. You can get inflation-adjusted bonds to provide for greater certainty.

    Mutual funds are composites of different investments. They too have varying degrees of risk according to the assets owned by the fund. The benefit of a mutual fund is the diversification it provides to mitigate the (often differing) risks involved in its diverse investments.

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  • by rshah9189 on December 4th, 2009

    rshah9189

    No. Long term equalls more risk. The interest rates will be flucuating. Also the shorter the time for bonds, the better.

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  • by Uncle Dud on December 4th, 2009

    Uncle Dud

    Long and intermediate term bond fund values will fall as interest rates rise. Long term bonds are ok if you hold them to maturity but if interest rates hit 8 percent you will not be happy holding a 3.5 percent bond.
    Bonds are safer
    Short term bond funds: In a rising interest rate environment you want to keep your duration on your bonds as short as possible. My recommendations on these funds are as follows:
    Janus Short-Term Bond fund symbol JASBX. This fund has never lost money in a given year. Year to date from Jan 1, 2009 to September 30, 2009 this fund was up 7.37%
    http://hubpages.com/hub/highbond

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  • by Yoyo Head on March 7th, 2004

    Yoyo Head

    The typical bond will go up and down in value less than a typical stock. However, when you refer to mutual funds, it's important to know that there are different kinds of mutual funds.

    There are stock funds, which have almost all stocks. Owning shares of one of these is less risky than owning an individual stock for a few reasons: 1. The fund owns a portfolio of dozens of stocks, so the chance your investment will lose all its value is like the chance of every horse falling down in the same race. 2. Professional managers pick the stocks to buy and sell, meaning you don't have to rely on your own research. In my case, researching what to buy and when to sell it would be an amateurish guess, so I leave it up to the pros.

    There are bond funds also. These are not invested in the stock market and therefore less risky because the typical bond is less volatile than the typical stock. Owning shares of a bond fund is less risky than owning an individual bond because, like a stock fund, the risk is spread out across many different investments and it's extremely unlikely that they will all go bad.

    One noteworthy thing about bonds is the question of tax-exempt status. The monthly dividends paid by most municipal government bonds are exempt from federal income tax. That can be a rather attractive feature, as you can imagine. The two things that eat up your return on any investment are inflation and taxes, and that takes one of them out of the picture.

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  • by notquitered on April 9th, 2008

    notquitered

    You can also invest in a bond fund which is a mutual fund that holds any number and types of bonds inside which helps to further reduce risk (not eliminate).

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  • by Sunita_C on October 18th, 2010

    Sunita_C

    Mutual funds in general provide investment programs for investors in long-term. Mutual funds offer investors the opportunity to earn an income or build their wealth through professional management of their invertible funds. In long-term Investors buy multiple stocks to reduce risk providing diversification and hopefully high returns or income to their investors.In Long-term The mutual funds are relatively risk free in the way they invest and manage the funds. The investment from the pool is well diversified across securities and shares from various sectors. The fundamental understanding behind this is not all corporations and sectors fail to perform at a time. And in the event of a security of a corporation or a whole sector doing badly then the possible losses from that would be balanced by the returns from other shares.So, if you are a retail investor and planning an investment in securities, you will certainly want to consider the advantages of Mutual funds investment

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