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Is it a good idea to invest in bonds if I only hold the money there for 2 years?
I am saving 200k for an apartment downpayment, I believe it will take me a couple years to do this. Is it a better bet to put all savings into bonds rather than keep them in a savings account which pays next to nothing?
3 Answers
- efflandtLv 74 years ago
If you own actual bonds held to maturity, you do not lose money unless unless whoever issued the bonds defaults and stops paying the interest or the original value at maturity. But since the interest is fixed, you may also fall behind the rate of inflation.
A bond fund can be worse, because if interest rates rise bonds lose value, and if stock markets rally, people pull out of the bond fund. That can result in losing money if you are still in the fund. When I first had a 401k I thought that a bond fund was conservative. But that was during rising interest rates in the Carter years. So I ended up losing 2.5% per year for years.
At this time the only bond fund I have is JNK ETF which I have been dividend reinvesting (buying more shares at no commissions) with the monthly dividends to increase future dividends. But I also have a mix of stocks that pay more or less dividends and appreciate in value plus other ETFs.
- roderick_youngLv 74 years ago
If you have that size of money, I'd suggest putting in a bond fund, such as the Vanguard long-term tax-free fund for your state. You will get some dividends, and I've actually never seen the unit price for the bond fund for our state (California) go down, except maybe 2008 (?), when it went down 0.5%.
