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Bond funds have recently regained appeal in the investment scene, offering individuals an intriguing avenue to explore. But why this growing interest and how can you, as a private investor, leverage this asset class?
After the 2022 bond shock, where the price of these investments dropped by nearly 20%, bonds are currently experiencing a revival on the investment scene with yields between 4 and 7% thanks to the rise in prime interest rates. These guaranteed income securities issued by businesses or governments to finance themselves, offer particular stability, making them attractive in an uncertain economic environment. By investing in a bond, you lend money to the issuer, who commits in return to pay a regular interest, called the coupon. At maturity, the issuer repays the principal as well as the final coupon.
As a private investor, you have several options for investing in these securities. You can buy individual bonds listed on the stock exchange, which allows you to hold them until their maturity, thus minimizing the risks of a loss in value. However, individual purchase can be burdensome, with high minimum transaction amounts. State or corporate bonds can be acquired during issuance or on the secondary market, offering a diversity of options for investors. It is also worth noting that selling before maturity can result in gains or losses. Mutual funds (FCP) and variable capital investment companies (Sicav) represent a more common option for private investors, offering diversification across several bond lines.The advantage of this indirect approach lies in the professional management that reduces the overall risk of the portfolio. Managers can adjust investments according to market conditions, offering some flexibility to investors.
Even though bond funds provide relative stability, it is essential to stay informed and aware of specific characteristics. Some funds may have lock-in periods, limiting your ability to withdraw money in the short term. Understanding the implications of this restricted liquidity is crucial. Investing in bond funds may also carry entry and management fees. The higher these fees, the less satisfying the investment's profitability may be. Understanding these costs before choosing an investment vehicle is essential. Moreover, bonds expose investors to certain risks: default risk if the issuer cannot honor its commitments, interest rate risk when interest rates rise, and liquidity risk if resale is difficult.In a turbulent economic context, bonds have reclaimed their status as a preferred investment. Their relative stability and yield potential make them an interesting option. The key, therefore, lies in a balanced approach, with diversification remaining crucial to mitigate risks.
