Your individual bonds suffered the same drop in value as bond funds. The only difference is that bond funds post their NAV for all the world to see, but you probably didn’t calculate your (paper) losses in individual bonds.Bond funds
- convenient
- liquidity
- subject to market volatility
- lack of transparency and control of duration
With bond ladder with individual bonds, you have 100% control of duration and if you hold them till maturity, you are not subject to market volatility and you capture all the yields.
It's not as convenient as bond funds, but in my opinion, it's a great way to invest in the fixed income allocation because to me the fixed income is for safety. A fund that could lose and did lose 15% when the interest rate hikes does not qualify for providing the safety that I expect.
I prefer to take risk in the equity allocation with expected higher return. It makes no sense to me to have to bare risk of double digit loss while earning low return. The risk/return doesn't pay off with bond funds, it does pay off with individual bonds.
If you don’t sell and realize the loss then you aren’t as affected by the drop in value, which is true for bond funds and individual bonds.
If you have a rolling basket of bonds, it behaves much like a bond fund. Risks for individual bonds include locking in a low rate when interest rates are going to rise and the risk of having to reinvest at a low rate after interest rates drop.
Statistics: Posted by rkhusky — Wed Aug 28, 2024 8:16 am