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Ask Dave

What is a Core Bond Fund?

Thomas in Tampa wants to know what a core bond fund Class C is.

QUESTION: Thomas in Tampa wants to know what a core bond fund Class C is. Dave tells Thomas he isn’t sure since he hasn’t familiarized himself with bonds and wouldn’t buy them.

ANSWER: Class C probably has to do with the shares that you’re buying. I’m not a fan of buying bonds, and I have not become an expert on them.

When interest rates start going up, the value goes down. That’s what usually happens with bonds. Bonds typically have an inverse relationship to interest rates. Core bonds could be, I guess, just some high-rated stuff that they’re holding there. It sounds like it’s just a bond mutual fund and invested in some very low-risk bonds—would pay more in corporate bond fund in a sense than CDs would pay. But you are at risk—a lot more risk—than a CD holds. When the stock market or interest rates move, it is going to go with them. That’s another reason I’m not a fan of bonds, especially in this environment. We’re in the lowest long-term interest rate environment in probably 30 or 40 years. When this starts ticking back up, bond holders are going to take a bloodbath.

You need to be where you understand what you’re investing in. What you need to look for in an investment broker is not someone who’s going to take care of you and not someone who’s never going make you have pain. You don’t need to look for somebody who has the latest flashy thing to put in front of you. Instead, you need to look for someone who has the heart of a teacher, who helps you understand what you’re getting involved in.

I wouldn’t be in bonds. I don’t sell any of this, so I don’t care what you buy, but I don’t own a single bond. It’s not because I like risk or something like that. It’s because the bond market is almost as volatile as the stock market, but it has not given the same rates of return. And we’re in a 30–40 year low in long-term interest rates. When these interest rates tick back up, it’s going to be bloody. That’s why I’m not in any of them.