Oct 21 2020, 10:39 AM
QUOTE(hksgmy @ Oct 21 2020, 06:32 AM)
Bonds are not for everyone. The entry bar is set quite high, especially if you’re a new/young investor starting out - as someone mentioned, whole (retail) bonds are sold in multiples of RM250,000 or $250,000 (in Singapore). Investment grade bonds don’t pay a high yield, usually up to 5% (and even that is rare now, given the super low interest environment) per annum, and the coupon is not compounded.
The typical bond buyer profile is someone who is more interested in preserving their wealth/capital with returns that beat inflation, as opposed to someone who is actively looking to grow their capital with higher returns.
A bond fund is like someone who has bought a basket of bonds, and now repackages the total into smaller, easier to digest, parcels and resells them to investors. So, instead of having to cough up $250,000 (or RM250,000) each time, an investor can come up with say, $50,000 and own a portion of a basket of bonds. The coupons are also then pro-rated and distributed accordingly.
Saw a lot of people recommend bond fund for newbies (not directly you). The typical bond buyer profile is someone who is more interested in preserving their wealth/capital with returns that beat inflation, as opposed to someone who is actively looking to grow their capital with higher returns.
A bond fund is like someone who has bought a basket of bonds, and now repackages the total into smaller, easier to digest, parcels and resells them to investors. So, instead of having to cough up $250,000 (or RM250,000) each time, an investor can come up with say, $50,000 and own a portion of a basket of bonds. The coupons are also then pro-rated and distributed accordingly.
Nothing wrong with that. But one thing to remember is bond funds go up when interest rate is lowered. That's also likely why your bonds bought during covid crisis soared when interest rates got cut to 0%.
BUT the inverse is also true. Bond funds go down when interest rates rise (especially rise above the point u bought the fund).
Since rates are now 0%, buying a bond fund now is not a great investment TBH. I also own many bond funds (eastspring and Affin Hwang) which have done excellently over last 5 years. But considering selling. Interest rates have nowhere to go but up....
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Or, newer bonds with a better yield. New bond offering yields will have to rise in tandem with the interest rate environment, otherwise there'll be no takers.
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