Important points to Invest in Bonds
- Make a ladder your maturities. i.e. buy 1-year, 5-year and 10-year bonds. If rates go up – as they will eventually – your bond prices will fall, temporarily. But you will get your principal back at maturity and be able to reinvest your principal at higher rates.
- Keep a close eye on expenses. i.e stick with individual bonds, Vanguard funds (whose expenses are one-sixth of the industry average) and low-cost ETFs.
- Avoid over-leveraged bond funds. Fund manager is leveraging the portfolio to add yield. This works just fine while bond prices are flat or rising. But when bond prices fall – a disaster will come.