tailieunhanh - Municipal bond funds and individual bonds

Executive summary. For the vast majority of investors in municipal bonds, mutual funds have a number of advantages over individual bond portfolios. Individual bonds do provide certain benefits compared with bond mutual funds, and these advantages revolve primarily around control issues. The price for the advantages can be thought of as a “control premium” that is paid through generally higher (or additional) transaction costs, lower liquidity, more limited return opportunities, and higher risks. Some investors may be willing to pay that premium and forgo alternative strategies to receive the control benefits. However, an investor who chooses to create an individual bond portfolio must assign a very high value to. | Municipal bond funds and individual bonds Vanguard Investment Counseling Research Vanguard Executive summary. For the vast majority of investors in municipal bonds mutual funds have a number of advantages over individual bond portfolios. Individual bonds do provide certain benefits compared with bond mutual funds and these advantages revolve primarily around control issues. The price for the advantages can be thought of as a control premium that is paid through generally higher or additional transaction costs lower liquidity more limited return opportunities and higher risks. Some investors may be willing to pay that premium and forgo alternative strategies to receive the control benefits. However an investor who chooses to create an individual bond portfolio must assign a very high value to the control aspects to justify the higher cost and additional risk involved. Vanguard believes that the vast majority of investors are better served through mutual funds. Only investors with enough resources to build a portfolio of comparable scale to a mutual fund can likely afford to put these control advantages ahead of the benefits of a mutual fund. This paper first outlines general factors to be considered when investing in municipal bonds. We then review the advantages of investing in municipal bond funds over individual municipal bonds. Author Donald G. Bennyhoff CFA Connect with Vanguard . investors Municipal bonds overview and investment considerations Municipal bonds are initially issued in the primary market where pricing is based on market conditions and demand. It is generally more cost-effective to buy these bonds in the primary market but institutional buyers dominate that market and historically it has been difficult for individual investors to compete with them for the limited bond supply. As a result most noninstitutional trading is relegated to the secondary market in which existing bonds are resold. Drawbacks of .

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