Investing - Theory, News & General • Re: Money market funds vs Bond funds

Money market funds give you the risk free rate. Barring calamity, you won't lose even one cent for even one second. Yield change happens, but doesn't have any immediate effect - it just adjusts up or down what the payment from your fund is going to be.

Conservative bond funds like BND (which is probably what you're looking at) will give you, on average, about 1% better per year than money market funds, at the cost of "duration risk". Duration risk means that when the yield of funds goes up, the fund's price goes down - so you temporarily lose money in return for the higher long term yield. The reverse is also true - if BND suffers a lowering of yield, you get immediate price appreciation to compensate.

Long-duration bond funds like BLV have even more average return over the risk free rate (like 1.5%) but have extreme sensitivity to change in rate expectations, so they'll lose a ton of money in exchange for raising the yield, and gain a ton of money in exchange for losing yield.

And then "junk bonds" - which are almost never discussed here - are bonds with a different kind of risk as well, credit risk. During economic downturns when sensitive companies are going bust, junk bonds tend to do poorly like the stock market.

Recently, yields have spiked, leaving current bond holders (especially long duration ones) miserable. Furthermore, in 2022, duration risk showed up in the the worst way in HUNDREDS of years. So recent feelings about the wisdom of taking duration risk are decidedly negative - even while bonds are now returning more yield than they have in a while.

Statistics: Posted by Tamalak — Wed Sep 30, 2026 2:21 pm