Connection funds have been good investments for 30 years, while stock funds have only sometimes been good places to take a position money. In fact, bond funds have outperformed stock funds, which is highly unusual. How come have they been such good investments, and will they be a good location to fund for 2012 and beyond? performance bond
Investors earn a living in bond funds in two different ways. Initially, they earn a living from the eye earned in the fund portfolio, in the form of dividends. Second, they earn a living when the share price of a fund goes up. As the early 1980’s interest levels in the USA have been falling, and in 2012 they can be at record lows. When rates land bonds rise in price (value). That’s why relationship funds have been such good investments. Period. Remember that.
On the other hand, when interest levels go up these funds aren’t good investments – they can be losers. The reason they are a bad destination to invest money when interest levels are rising: the bonds in their portfolio pay home loan that is FIXED for the life of the investment. Rising rates make them less attractive and less valuable as an investment alternative. Hence, attachment prices fall. And which what bond funds commit money in: bonds.
Years ago, these funds were paying lofty dividends when interest levels were high. News if you’re lucky to earn 3% or 4% in gross income in high quality bond funds, after account expenses. How can you generate profits if you acquire 3% a year in dividend income while the price or value of your fund falls even just the teens, 30% or more? Excess weight loss. And it could happen news, 2013 and beyond if interest levels go up. When the rates start going up, this is not where you want them to spend money.
In your search permanently investments always consider risk vs. reward. In order to make more than 4% a 12 months in high quality connection funds interest levels need to keep falling. With the world’s safest bonds (U. S. Treasury bonds) paying 3%, while 30-yr. home loans are at 4% and 1-yr. CDs at 50 percent, how much lower can rates go? The risk is actually high for the reward of making a miserly 3% or so. If you commit money during these money keep one eye on interest levels and one attention on your investments.
The simple days to earn a living in bond funds is over. The afternoon the USA’s central banker (the Federal government Reserve) stops pushing interest levels lower, rates could go up. This may well not happen until later news or in 2013; but beware. Once rates rise these cash will not be good investments. You need to invest money somewhere, but don’t load up on bond funds now. You would like to earn a living – not go through the loss.