When most people think of bonds, they probably imagine decades old bearer bonds hidden away in Grandma’s attic. Not only is that an outdated description, it also doesn’t encompass what bonds really are. Brandon Marcott, founder of Edify Financial Planning, said that even the term “bond” doesn’t begin to encapsulate what those assets really mean. “‘Bond’ is so broad,” he said. “Just like ‘stock.' Saying that word really means nothing, as there are so many types of bonds that do so many different things. I think the classification of portfolios as x% stocks and x% bonds is confusing and misleading for clients.”

Have you had the wrong idea about bonds? Read below to find out and learn what the four biggest bond myths are. (For more, see: Bond Basics: Introduction.)

Bonds Are Always Safe

“True, it is more likely that a bond is more conservative than a stock, but that is not necessarily true,” Marcott said. “When owning a single bond, you have many risks. The company or entity could default, they could have a rating change, interest rates could change. All these drastically impact the value of your bond.” (For more, see: Six Biggest Bond Risks.)

Marcott said he’s had clients who have used bonds as savings accounts. If you need access to liquid funds, a bond is not the appropriate asset to use. “It doesn't take much of an interest rate change to affect bond value,” he said. They won’t be as unpredictable as stocks, but bonds are still tied to how the market is doing.

Your Bond is Guaranteed

There are no sure things, even when a bond is concerned. One of the risks that a person takes on when they buy a bond is the risk that the company will still be around when the bond reaches its maturity date. It’s always a possibility that the company will default and you won’t receive what you were promised. Like any area of investing, buying a bond is not a guarantee that it will reach its maturity date without issues. (For more, see: What are the Risks of Investing in a Bond?)

You Need a Broker to Buy Bonds

Even though it might seem easier to buy bonds through a broker, you’ll often find it better to buy them yourself. Brokers can charge a range of fees, significantly impacting your return. You could also find yourself going along with the broker’s recommendations, which may be wrong for your particular investing needs. If you’re going to get advice from someone about bonds, make sure they have a fiduciary obligation to put your priorities ahead of theirs.

Owning Bond Funds = Owning Individual Bonds

“Many investors think that holding a bond fund, a mutual fund or exchange-traded fund (ETF) is the same as holding individual bonds,” says Joseph Hogue, chartered financial analyst (CFA) and author of Peer Finance. “While buying a single mutual fund or ETF that holds many bonds might be easier, there are some disadvantages.” (For more, see: Pros and Cons of Bond Funds vs. Bond ETFs.)

There are fees that come with buying bond funds which can eat away at any profits you hope to earn. Bond funds combine the low volatility of bonds with some of the freedoms that you get with other assets. “The biggest disadvantage in bond funds is that investors have the opportunity to be their own worst enemy,” Hogue said. “As interest rates rise, the value of the bonds in the fund decreases and causes the price of the bond fund to decrease. The ease of buying and selling funds makes it too easy to panic and sell out of what should be a long-term investment. Investors holding individual bonds will always receive the yield at which they bought the bond, assuming they hold it to maturity and the company doesn’t default.”

Bottom Line

Even if you’re using bonds instead of stocks, the traditional rules of investing apply. Buy low, sell high. Don’t panic if the market is crashing. Bonds can be a great addition to your portfolio, if you’re aware of when they’re appropriate to add. Use them to diversify your assets, mitigate your risk and hedge your bets. (For more, see: Bond Basics: Yield, Price and Other Confusion.)

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