If you’re looking for a type of investment that will not require you to spend a lot of money on your income tax, then bond funds are probably for you. While these funds might not require a large initial investment, they are really only worth your while if you are looking to invest a large amount of money (if you are investing small amounts, then income tax should not be a problem). These bonds funds are similar to money market funds, however, instead of investing in short term money markets, bonds will invest in high-yield, long-term investments.
There are a few risks that are associated with bond funds, however, most of these risks can be avoided if you research the bond fund that you’re thinking about. The bond funds that have the lowest risks are those that invest in the type of bonds that are highly likely to pay back debts when they are due. For instance, government and municipal bonds are the best for this situation. Bonds to private companies are also good investments, but they are a little more likely to default on the debt when the bond matures.
Once you’ve found a bond fund that you would like to invest in, keep in mind that you should also check the performance of that fund in the past. While this is not going to ensure that the bond fund will continue to perform the same way in the future, it will help you figure out whether or not this is the right bond fund for you.
Things to look for in past performance include the history of the bond over a long period of time. This is the best way for your to figure out whether or not the bond performs well in general. You should not invest in a bond just because it has had a good quarter or year, however. Generally funds that are highly volatile over a short term period of time are not very safe for your investment.
Overall, however, if you’re looking to invest in bonds, but you want to have a professional manage your investments, then a bond fund is the right decision for you. Bond funds are also a good idea if you’re looking to invest a large amount of money and do not want to pay income tax on your investments.