Six months after putting $100,000 into a bond mutual fund, a prospective client presented financial advisor Nancy Coutu with a problem: The investment's value had dropped to $90,000.
"This was her life savings," said Coutu, cofounder of Money Managers Financial Group. "People might think they can't lose 10 percent or 20 percent in a bond fund, but they're sadly mistaken."
The problem, advisors say, is that many investors think all bond investments are risk-free. The truth is more complicated. The idea, advisors say, is to understand the benefits that bonds bring to an investment portfolio and the various risks that come with them.
"Everything has risk," Coutu said. "You just have to understand where the risk is, and then determine if you can tolerate it."