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Bond Funds

You always have the alternative of purchasing bond funds instead of individual bonds. Just as we discussed in the chapter on equities, the advantages are similar. Bond funds provide greater diversification, and they also provide professional money management. The cost of managing bond funds is less on average than the cost of managing an equity mutual fund, with the average cost for bond funds running .90 percent per year.

The key point on bond mutual funds is that unlike an individual bond that has a specific maturity date, bond funds comprise multiple bonds with varying maturity dates, and the fund managers may actively buy and sell bonds within the portfolio. This means two important things: There is no maturity date, and you will likely have annual gains and losses on the fund that are passed on to you as the investor.


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