Should I buy individual bonds or bond funds?April 23, 2012: 5:05 AM ET
I have 40% of my portfolio in bond funds. Should I instead buy individual bonds to hold to maturity?
— Rick W., Concord, N.H.
With individual bonds, you know exactly what you'll collect every year and what you'll get back when the bond matures. A fund can't promise that. But buying bonds from a broker can be a problem. "The pricing you'll get is terrible," says Annapolis planner Ted Toal. Institutions buying millions' worth of the same bonds pay a far lower price.
To get a decent deal, pros advise investing a minimum of $10,000 to $25,000 per bond. You'd need a large six-figure portfolio, then, to buy enough bonds to limit your risk. "People are vastly more diversified in a fund," says David Hultstrom, a planner in Woodstock, Ga. For investing in U.S. bonds, he likes the Vanguard Total Bond Market ETF (bnd), which charges a low 0.11% of assets per year.
-- Kate Ashford
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