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.’”