Individual Bonds

Introduction

A bond is a loan to a company or the government at a specified interest rate. The interest is typically paid twice a year and at maturity, the principal is paid back, too. Some investors like individual bonds because they have an end to them and your principal is returned (unless the bond defaults) whereas bond mutual funds and ETFs have no end - the principal is adjusted.

When you buy a bond, you know:

• Exactly what your interest payments will be,
• When you will get them
• When you’ll get your initial investment back (as long as the company doesn’t default).

The prices of bond funds, on the other hand, move up and down just like any other mutual fund. If you need your money on a specific date, you’ll have no idea what your mutual fund will be worth. That can make investing in individual bonds preferable for people who need a specific amount of money at a specific time.