Creating a Financial Plan
Bonds can play a variety of roles in a wider investment mix. They can serve as a source of potential income, capital preservation, total return and diversification.
Bond funds also come in various flavors. Some funds focus on particular types of bonds, others on specific maturity ranges. For example, shorter term bond funds may emphasize capital preservation alongside seeking modest income. They can, therefore, serve as a source of liquidity.
On the other hand, a longer term bond fund, or one focused on lower rated bonds, may be more volatile and higher income or total return may be the goal.
Most types of bond funds also offer an additional benefit: diversification. Put simply, stock and bond markets typically behave differently. Their returns change by different magnitudes and often move in opposite directions, doing better or worse at different times in the business cycle. Bond returns, therefore, often have served as a counterweight to stock market returns.
The mix of bonds and stocks that is right for you depends on your investment time horizon, objectives, risk tolerance and overall financial health. Your financial professional can help you decide how an investment in a bond fund could potentially help you meet your financial objectives.
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.
This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.