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TRUMP UNIVERSITY WEALTH BUILDING 101

bond prices. And when you hold a bond to maturity, you’ll get the face value
back. If you sell your bonds before maturity, the amount you receive depends
on interest rates at that time. Bond prices rise when interest rates fall, but
bonds decline in value if rates rise.
With bond funds, you cannot lock in a yield. Bond funds have no set
maturity because their portfolios change with market conditions, and with

the flow of money in or out of the fund. Bond funds are more expensive to
hold over time. The average bond fund charges roughly 1 percent of your
investment each year. This expense is modest on a smaller investment of, say,
up to $20,000, but the more you invest, the more critical extra costs become.
On a $100,000 investment, you might sacrifi ce up to $1,000 of annual inter-
est income by using a bond fund. In addition, bond funds sold by brokers
carry either up-front or deferred sales charges, or higher annual expenses. On
the upside, though, bond funds own many issues, and you get professional
management. Managers can extend and shorten maturities based on their
view of what interest rates will do, for example, or seek bonds they consider
undervalued.
Investing directly in bonds offers lower expenses and higher yields, but
there are drawbacks. Except for Treasury securities, small lots of bonds—
$10,000 or less—are expensive to buy and sell. Purchase costs tend to run
1 percent or more of the price, and commissions on sales are even higher. You
also limit diversifi cation.
U.S. Treasury securities are the best to buy directly. They carry the high-
est ratings for credit safety, so you don’t have to analyze the issuer’s fi nancial
health and/or business prospects. So you don’t need professional manage-
ment and diversifi cation.
Treasury bills cost a minimum of $10,000. Two-year and three-year
Treasury notes carry a $5,000 minimum. Other issues carry a $1,000 mini-
mum. Treasuries are easy to buy and sell, with low markups and low sales
commissions. You can also buy new Treasuries directly at no commission.
Visit www.treasurydirect.gov for more information.
Municipal bonds or munis are a popular choice for many investors. They,
however, often are difficult to buy and sell without high commissions, and can

require complex analysis. Buy them directly instead of through bond funds
only in these situations:

• You invest at least $50,000, making adequate diversifi cation possible
without paying stiff commissions on small purchases.
• You buy high-quality bonds (rated A or higher for fi nancial strength)
of well-known issuers.

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