Don’t Make the Mistake of Believing Bond Funds Are Without Risk

In a September Investor News announcement, the Financial Industry Regulatory Authority (FINRA), addressed a common misconception about bond funds. Investors have been attracted to bond funds as a way to reduce their risks and some have filled their portfolios with these investments. FINRA warns that this could cause more risk than investors realize.

The common myth about bond funds is that there is little to no risk of losing principal. However, that is not true. There are some other issues associated with bond funds that you need to understand:

• Your investment will fluctuate and could drop in value. Bond funds behave similarly to stock mutual funds, which many investors fail to realize. In fact, the value of the bond fund can change on a daily basis.

• Interest rates could impact value. A rise in interest rates could cause the net asset values of some bond funds to drop, according to FINRA.

• Your returns could go down. Your returns could be dependent on the activity of other investors. For example, FINRA states that if “investors choose to move their money elsewhere,” it could “force fund managers to sell their bond portfolios at a loss to pay redemptions.”

If you have lost money in a bond fund, depending on the details of your case, you may be able to hold the brokerage firm liable and recover your losses.

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