If you don't have a lot of money to invest, but want to allocate some of your portfolio to bonds, you might want to look into bond
mutual
funds.
You can buy shares in a bond fund with an initial investment of between $1,000 and $2,500 dollars and add assets gradually, sometimes as little as $50 a time if you arrange for direct transfer into the fund. That gives you much more flexibility than buying individual bonds.
What's more, your dividends can be reinvested to buy additional shares, providing compounding that's not possible with individual bonds. And you get the benefit of professional management. That expertise can be a particular advantage in diversifying into riskier high-yield bonds, which can provide welcome added income but also expose you to greater risk of
default.
On the other hand, while bond funds invest in individual bonds, they're quite different investments from individual bonds themselves. Bond funds have no
maturity date,
don't pay a fixed rate of interest, and make no promise that you'll get your original investment back.
Alexandra Lebenthal, President and Chief
Executive Officer of
Alexandra &
James, Inc.
Alexandra Lebenthal, President and Chief