Thursday, December 02, 2004
Fixed Income Investing:Bonds www.legacyannuities.com
Bonds vs. Bond Funds. Which is Better?
If you want income, you have several choices including the purchase of individual bonds or bond funds. There is a big difference in considering which is best for you.
Individual bonds have three primary advantages:
You get exactly what you want. If you want an AAA 15-year bond, you can buy exactly that. In a bond fund, you cannot control what the fund manager buys.
Secondly, with individual bonds, you get a fixed rate of interest that does not vary. In a bond fund, your income cannot be depended upon and will change.
Last, with individual bonds, the face value is paid at maturity. So you have certainty of what you eventually receive, while with bond funds, your principal has no fixed pay off date.
Why buy bond funds? The funds offer professional management and diversification. Some investors place great value on these features. Additionally, for small investors, bond funds allow small additions or systematic withdrawals that contain principal and interest.
However, Time magazine felt so strongly of the advantages of individual bonds over bond funds, they published an article, “Bond Fund Buyer Beware” (March 2, 1998). In light of the above differences between bonds and bond funds, they made the following comments:
Bonds vs. Bond Funds. Which is Better?
If you want income, you have several choices including the purchase of individual bonds or bond funds. There is a big difference in considering which is best for you.
Individual bonds have three primary advantages:
You get exactly what you want. If you want an AAA 15-year bond, you can buy exactly that. In a bond fund, you cannot control what the fund manager buys.
Secondly, with individual bonds, you get a fixed rate of interest that does not vary. In a bond fund, your income cannot be depended upon and will change.
Last, with individual bonds, the face value is paid at maturity. So you have certainty of what you eventually receive, while with bond funds, your principal has no fixed pay off date.
Why buy bond funds? The funds offer professional management and diversification. Some investors place great value on these features. Additionally, for small investors, bond funds allow small additions or systematic withdrawals that contain principal and interest.
However, Time magazine felt so strongly of the advantages of individual bonds over bond funds, they published an article, “Bond Fund Buyer Beware” (March 2, 1998). In light of the above differences between bonds and bond funds, they made the following comments:
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