How to Compare Bond Fund Yields

The idea that investing in stock markets is more profitable than bonds has been thoroughly trashed in recent year. Many people are therefore taking a keen interest in bonds again. However, trying to compare different bond funds can be daunting as there are so many different ways to measure yield and income. However, there is one common measure, known as the SEC Yield. This assumes that all the bond holdings are held till maturity. The calculation is therefore unambiguous and the investor can compare like with like.

The SEC yield is better than historical data at estimating future income yield, said Ken Volpert, head of Vanguard Group's taxable bond group and co-manager of Vanguard Total Bond Market Fund. "It's a close approximation to the net yield-to-maturity of the fund, which is what we as bond investors think about," he said. [MarketWatch]

However, in trying to rake back quickly any recent losses, it may be tempting to head for the highest yielding funds. But be careful when making comparisons to also take a look at the fund's rating as high yielding bonds often come bundled with high risk.