Welcome to the forum!InvestorWD wrote: Please let me know what is wrong with my understanding on bond funds ?
You can take a look at the following Vanguard Site
Vanguard Allocation Models
At the top of that page the worst loss in 100% bonds from 1926-2013, in a calendar year is -8.1%
At the bottom of that page the worst loss in 100% stocks from 1926-2013, in a calendar year is -43.1%
You can read the bottom of page to see what Vanguard used for stocks and bonds in their research.
Based on that and other measures, such as standard deviation, we know in the past stocks are more volatile then bonds.
Many have predicated, for a while, that bonds are in for a big drop. One day they will probably be right. But at this site we do not try to time the market, be it in stocks or bonds.
One nice feature of bonds in general is that when the price drops and interest rate increases, giving you more interest over time.
Would you rather own a bond fund where the price increases then levels out and the interest rate decreases and stays low forever.
Or would you rather own a bond fund where the price decreases then levels out and the interest rate increases and stay high forever.