Bond funds can offer advantages to every type of investor. Whether your objective is income, risk reduction, or a decreased tax burden, a T. Rowe Price bond fund can be a vital addition to your investment portfolio. These versatile funds are diversified across multiple individual bonds and are professionally managed.
- Income. Bond funds can provide a source of current income. They can serve as an attractive "middle ground" between cash investments and stock funds, offering the potential for higher returns than cash investments with less overall volatility than stock funds. (You should note that unlike cash investments, bond prices will fluctuate with market conditions. In addition, stocks historically have offered higher return potential than bonds.)
- Improved diversification and reduced volatility. Bond funds provide a convenient way to reduce the overall volatility of a stock-oriented portfolio. Low correlations to stock performance allow bonds to balance a stock-heavy portfolio without significantly reducing return potential.
- Decreased tax burden.* Municipal bond funds earn income free of federal tax, and state municipal bond funds generate income exempt from federal, state, and, sometimes, local taxes. For investors in a higher federal tax bracket or residents of a high-tax state, investing in these types of bond funds can provide a significant overall tax advantage.
*Some income may be subject to the alternative minimum tax (AMT).