Kiplinger published a comparison of individual bonds versus bond funds, drawing on commentary from fixed-income specialists at Schwab, U.S. Bank, and Fidelity. According to Collin Martin, head of fixed-income strategy at the Schwab Center for Financial Research, building a well-diversified portfolio of individual corporate or municipal bonds typically requires at least $100,000 spread across 10 or more bonds in different sectors. U.S. Bank's head of capital research, Bill Merz, said his firm's preferred minimum for a high-quality corporate bond portfolio is $250,000, which he noted should represent only 25% to 30% of a total portfolio.
Individual bonds held to maturity pay back a set amount on a set date, which can be useful when a specific large expense — such as a loan payment or tuition bill — is coming due. However, the specialists quoted in the article note that individual bonds require ongoing research and monitoring, and that a single default can meaningfully reduce a portfolio's income. Bond funds require less hands-on work and carry lower minimums, though they do not offer the same payment certainty at a fixed date.
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