Lenders & Advisors

What Is A Bond Index Fund?

February 8th, 2013
Since you work hard for your money, you probably want it to work hard for you too.

In these tough economic times, you want to get the most for your money. If you are like many Americans, you may not have much of your paycheck left to save after you have paid all your bills and bought necessities like groceries and gas. However, if you are able to save a little money, it would be nice if that money could multiply! Since you work hard for your money, you probably want it to work hard for you too.

There are many different investment options to consider. Of course, there are always the traditional ones like savings accounts or the stock market. However, savings accounts currently have very low yields. On the other hand, the stock market is extremely volatile, and you may not want to risk your hard earned wages in such a risky way. Fortunately, there are alternative investment options for those who would like to see their savings grow. One such alternative is a bond index fund.

A bond index fund is related in many ways to its counterpart, the stock market index fund. It is not actively traded by you or a portfolio manager; instead, it is based on a bond index such as Barclay's Aggregate Bond Index. The fund consists of the bonds that are held in that index, which is generally thought of as a measure of a cross-section of the bond market as a whole. In addition to the benefit of not requiring active management, a bond index fund offers the advantage of being diverse. Diversification is a highly sought after principle in the investing world; while it may prevent investors from making a huge amount of money in a short time, it protects them from crushing losses that could obliterate their entire portfolio. They are also lower cost, which is always a plus if you are barely able to make ends meet as it is.

If you decide that a bond market index fund is a good place for you to invest your money, you will need to decide which one to invest in, as there are several options. Some are based on government bonds, while others are comprised of emerging market bonds, high yield bonds, or an aggregate of all United States bonds. Do a little research or consult a trusted broker to determine which type is ideal for you. When you are ready to make a purchase, you can do it through the regular bond market system, or you can buy exchange traded funds (ETFs) through a broker

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