Is direct investing in bonds for you?

Savings can be had. But it takes time, effort and (enough) money.

Gail Bebee 18 September, 2014 | 6:00PM
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Bonds may have a reputation as a "safe" asset class, but investing in them directly is a daunting task. The array of choices can be bewildering: government or corporate; short-, medium- or long-term; high-yield or investment-grade, and so on. Rising interest rates can hammer the value of long-term bonds. Even worse, you could lose most or all of your investment if a high-risk issuer defaults.

Buying a bond mutual fund or an exchange-traded fund is a popular way to invest in bonds. However, investors must pay ongoing management fees and expenses, which in most cases are a significant drain on returns. This is especially true when bond yields are low, as is now the case.

Buying an individual bond entails a one-time purchase commission and no ongoing fees. The interest payments, and the maturity date when the principal is returned, are known. By comparison, fund distributions can vary and most funds have no maturity date.

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About Author

Gail Bebee

Gail Bebee  Gail Bebee is an independent personal finance speaker, teacher and the author of No Hype--The Straight Goods on Investing Your Money. She can be reached at gbebee@gailbebee.com; her website is www.gailbebee.com.

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