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Bonds, Second Edition by Stan Richelson, Hildy Richelson

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CHAPTER 16

Bond Funds

THE GOOD, THE BAD, AND THE WORST

Let’s face it. The easiest way to invest in bonds is to buy a bond mutual fund. Financial firms have catered to this strategy by creating almost 3,000 such funds and packaging them in a variety of shapes, structures, and contents. But holding an individual bond differs greatly from owning a bond fund because the fund has no due date. A bond mutual fund is not by definition a fixed income product.

As we described in Chapter 5, the way to understand fixed income investments is to calculate the yield-to-maturity and the yield-to-worst, referred to as yield. Because of the structure of funds, they cannot use those yield calculations so the meaning of yield is different when it’s applied to them. ...

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