Why Do Members Use Bonds or Bond Funds?


Last month’s Asset Allocation Survey special question asked AAII members what influences their decision to use individual bonds or bond funds for exposure to fixed income. Nearly 37% of respondents said that they use bond funds because of a lack of knowledge about bonds, a lack of time to research individual bonds, ease of ownership, simplicity, access to a professional manager and/or diversification. (Some respondents gave more than one reason.) Among the 10% of respondents who said that they own individual bonds, many cited the certainty of returns, the ability to hold the securities to maturity, ladder maturity dates and/or control. Slightly more than 17% of respondents said that they do not own bonds or bond funds.

Here is a sampling of the responses:

  • “Simplicity of buying, following and selling. I don’t have the time or the inclination to become educated about thousands of bond offerings.”
  • “The lack of liquidity in individual issues, bond fund expenses and good fund management are the reasons I choose low-cost bond funds.”
  • “I like holding individual bonds so I can receive the coupon payments and can count on the income that is provided.”
  • “I do not own bonds or bonds because interest rates are very low and are likely to rise.”
  • “With a bond, you can get back 100% at maturity. With funds, this is not the case.”
  • “Lack of knowledge and willingness/time to manage, so I leave it to ‘the experts.’”

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