6 Disadvantages of International Bond Funds

Investing in international bond funds can provide you with some benefits. However, at the same time, there are several disadvantages to this type of investment. Here are six disadvantages of investing in international bond funds.

1. Costs

One of the biggest disadvantages of international bond funds is that the costs cut into the potential returns from investment. You are going to have to pay an expense ratio that is charged in order to cover administration expenses and the salaries of the fund managers. There are other fees that you will have to pay such as 12b-1 fees and sales charges. By the time you are done paying all of the different fees, it is going to significantly reduce the amount of money that you can make from this investment.

2. Limited Knowledge of Returns

Another disadvantage of investing in international bond funds is that you are not going to have much information about how the fund is performing. With international bond funds, you are not going to know how much of a return is made until the end of the accounting quarter for the fund. This means that you are going to be able to find out how you are doing only four times a year. For many investors, this is not frequently enough.

3. Lack of Control

Another problem with international bond funds is that investors do not have any control over where their money is going. They do not get to have any say in the selection of the bonds in the fund. Many investors like to have some kind of control over the investments that they put their money in. However, with this type of investment, you are not going to have the choice.

4. Timing

With international bond funds, the bonds are going to mature at different points. Because of this, you could run into timing issues that affect the amount of money that you get back when you cash out. You may not get the full amount of money that you have invested because of the maturity times of the bonds in the fund.

5. Risk

Another potential problem with international bond funds is that they are riskier than domestic bond funds. Many of these funds invest in areas that are not quite developed, and this increases the amount of risk for the bond fund. Many people feel safer when they are investing money into their own economy instead of in the economy of an unstable country.

6. Unknown Buy and Sell Prices

With international bond funds, you are potentially going to have some problems with the fact that you do not know the buy and sell prices of the shares when you initiate the transaction. With mutual funds, you are going to put in an order to buy shares or sell your own shares, and the price will then be calculated at the end of the trading day. This uncertainty can significantly cut into your returns and cost you money that you were not counting on. 

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