price for the bond will be expressed in pounds, not dollars. Thus, these funds have three inherent risks: (1) financial risk, (2) interest rate risk, and (3) currency risk. As the world’s different currencies fluctuate against the U.S. dollar, the prices of the bonds, as converted to dollars, will change. These bonds also give the investors the chance to partake, indirectly, in foreign currencies and diversify their portfolios as such. Sometimes, the asset allocation model will rec- ommend some foreign currency investment.
GLOBAL BOND FUNDS. Global bond funds are just like interna- tional bond funds, and are subject to the same types of risk associated with international bond funds. However, global bond funds may invest in the bonds of both the U.S. government and U.S. corporations.
Municipal Bond Funds These funds may provide the investor a stream of tax-free income for both state and federal income tax purposes. I have a number of clients who have benefited from holding municipal bond funds because of their favorable tax treatment.
that are issued by states, cities, and other municipalities make up national municipal bond funds. The underlying bonds and securities may be from all over the country, or they may be geographically cen- tered. Some of these bond funds invest only in high-quality bonds, while others will invest in lower-quality, or junk, bonds. The bonds may have a variety of maturities. The income from these funds is tax-
free for federal income tax purposes.
STATE MUNICIPAL BOND FUNDS.
These funds are state specific
and are federal,
designed to provide the investor with tax-free income state, and local income tax purposes, provided that
investor is a resident of that specific state. All types of bonds cities and counties within a state are used in these funds.
Money Market Mutual Funds One of the more widely held investment vehicles, money market mutual funds, or money market funds, provide the investor with a highly secure, liquid account that earns interest. These funds are gen-