Jack Everett, a financial planner in Roseville, said it's easier to sell a bond fund than an individual bond, and you don't have to sell all of the shares in the bond fund at once. Also, bond funds offer the option of reinvesting interest payments or distributing them to the investor. Individual bonds typically make interest payments twice a year with no choice to reinvest the income. To own a piece of a diversified bond mutual fund doesn't require as much money as buying a single bond. But over the long haul, bond funds will have ongoing costs that investors are spared if they stick with individual bonds.
Brokers typically charge a commission for handling the purchase for a client.
Aside from the lower cost, Blaylock said that individual bonds give investors the opportunity to tailor their portfolio to their needs. An investor can buy bonds that will mature in time to use the bond principal for that household expense, he said. Like an estimated 90 percent of those who invest in individual bonds, Wallace Eberhardt, a Sacramento retiree, expects to keep his bonds until they mature. On the other hand, bond funds never mature because they are constantly being replenished with new holdings. Its purpose is to manage assets on a continuing basis.