Should You Hold Bonds To Duration

The Canadian Couch Potato recently released a well-researched post on the costs and benefits of holding bonds to maturity. The basic choice facing bond investors is whether to invest in specific bonds directly or to buy a basket of bonds through a mutual fund. The primary benefit of buying a bond mutual fund is the diversity of bond holdings that protect you should one of the bonds default, and the primary benefit of an individual bond is that you receive steady interest payments until the bond matures that you are guaranteed to receive unless the security goes bankrupt. The most noticeable drawback of a bond mutual fund is that changing interest rates can vastly affect the value of your portfolio, and the most noticeable drawback of holding individual bonds is that they could default and leave you with nothing. If you're a small investor, owning individual bonds can be pretty risky, since one default could wipe you out. If you're a large investor, you can afford to buy many individual bonds that insulate you from the risk of a singular default. To get more information on this, check out the great article at The Canadian Couch Potato for a great follow-up on the topic, link here: http://canadiancouchpotato.com/2011/07/07/holding-your-bond-fund-for-the-duration/