Am I suitable for buying bond funds? Decide after understanding the three major
2024-05-04
122 CommentsToday, the director would like to discuss with everyone the five common questions about bond funds:
1. What is a bond fund?
A bond fund refers to a fund that primarily invests in fixed-income financial instruments such as government bonds and financial bonds. Because the returns on the products it invests in are relatively stable, it is also known as a "fixed-income fund." Depending on the proportion of stocks invested, bond funds can be further divided into pure bond funds and bond-oriented funds.
Today, we focus mainly on pure bond funds. Pure bonds are those that invest only in the bond market and do not invest in the stock market.
2. The advantages of pure bond funds?
1. Buying a pure bond fund is equivalent to buying a capital preservation fund.
Many people do not like to buy pure bond funds because their returns are much lower than those of the stock market. It might be possible to earn the annual return of a pure bond fund in just one day with a stock market limit up.
But don't forget, once you catch a bad stock market trend, it's not about how much you can earn, but how much you can lose.Pure bond funds essentially eliminate the concern of losing money. Historical back-testing data indicates that pure bond funds have never experienced losses in any calendar year. Even during the bear markets for bonds in 2009, 2011, and 2013, there was no issue with the loss of principal; the returns were just not high.
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Secondly, compared to the maximum return of 5% for bank wealth management products, pure bond funds can achieve returns of around 7%, which is quite acceptable.
Some may ask, can't I just buy trust products? Yes, you can, but trust products require a minimum investment of 1 million yuan, with returns typically ranging from 7% to 8%, and they have a one-year lock-up period. In comparison, pure bond funds are more cost-effective.
2. Long-term stable annualized returns
During the bull market for bonds, many pure bond funds have seen returns exceeding 10%, with an average return of about 6% in 2012. The best-performing ones could be even higher.
In other words, if you had invested in pure bond funds 10 years ago, the returns have generally been around 7% over these years. With compound interest, your assets would have doubled in 10 years.
The investment risk of bond funds is lower than that of stock funds, and so are the returns. However, if held for a long time, they can still outperform bank savings, which is why they are often used as a tool to hedge against inflation.
3. Can hedge against the risk of stock market declines
What does it mean to hedge risks? This is actually a concept in asset allocation, which involves balancing risks by allocating to two or more uncorrelated products.
If you have allocated to stocks and also allocated to stock funds, such allocation is meaningless because if the stock market declines, your stock funds will also decline, and the risk has not been reduced.So, what is the correct approach? When you allocate stocks, you also allocate bond funds, and the risk is hedged. When stocks fall, the bonds you buy make money, and when the stock market rises, the stocks you buy make money, so you can hedge against the risk of a stock market downturn. This is the meaning of asset allocation.
III. Who is suitable for buying bond funds?
1. Suitable for risk-averse individuals
Up to this day, there are still many people who have not allocated any financial products other than bank deposits, insurance, and purchasing Yu'e Bao on Alipay. The reason is simple: they have an extreme aversion to risk and adopt an evasive attitude towards any potential risks in investments.
If you belong to this category, then you might consider pure bond funds. The risk level of pure bond funds is essentially on par with bank financial products, and its returns are higher than those of bank financial products. A good pure bond fund can also achieve double-digit returns.
2. Those with a large amount of investable assets need to allocate a portion for risk aversion
For those with a significant amount of idle funds, pure bond funds can be an important product in asset allocation. Firstly, the risk is relatively low, and secondly, the returns are also considerable. If you have a large asset base, holding millions or even tens of millions, then allocating to pure bond funds can serve as a hedge against risk.
3. Investors who are bearish on the stock market
If you believe that the stock market will be in a bear market for a long period in the future (in fact, the characteristic of the Chinese stock market is short bull markets and long bear markets), you should allocate to this fund. Especially this year, affected by the pandemic, the overall economic environment is not optimistic, so you can allocate some pure bond funds.That concludes all the valuable content the director has shared with you today~
If you have any questions about bond funds, feel free to send us a private message at any time~
Risk warning: Investing involves risks, and fund investments should be approached with caution. This document does not constitute investment advice, and investors are responsible for the risks associated with their actions based on this information.