Bond funds have done so badly that I feel they have gone down as much as they could. Is it time to invest in bond funds now?
You may be right, but actually, that does not matter. The problem is that you won't know whether you were wrong or right until it is too late. It is almost impossible for an individual investor to be able to get the timing of their investments correct consistently.
Instead, it is much better to have a method of investing that makes timing less relevant. There are far too many unknowable factors that influence short-term market movements. Investing should be based on what is known and the 'known' is your investment need.
If you need an investment which gives you liquidity, preserves you capital and gives you a modest income then a bond fund is the right thing for you and it is time to invest.
This may leave you a bit unsatisfied as even bond markets have their share of risks. But we are not recommending the 'jump into the water and you will learn to swim' approach to investing. The way to tackle risks inherent in the market is not through timing the market but by managing the time spent in the market. By this we mean match the type of fund with your investment horizon.
Thus over a one year horizon a medium term bond fund will in all probability preserve your capital and give you a decent return. If your investment life is only three months then take a look at short term funds.