If you have a substantial amount of money to invest ($250,000 or more), you may find some small benefit in purchasing bonds directly as opposed to investing in bond funds.  The same arguments for stock mutual funds can be made for bond mutual funds. Bond funds allow investors to own a small percentage of a very large portfolio, which offers a level of diversification that can not be achieved investing as an individual.  In addition to having your money diversified, bond funds can create a blended portfolio that is simply difficult to replicate as an individual.  The blending of bonds in a large fund can be done to achieve higher yields as well as to stagger maturies to reduce interest rate risk.

There are hundreds of bond funds to choose from, including U.S. Government bond funds, corporate bond funds, and funds holding bonds of various municipalities and state governments.  I would strongly suggest that most investors should stick with bond funds rather than trying to go it on their own.  It is true that you will have a small amount of additional expenses eating away at your returns (due to management fees), but I think the offsetting benefits are well worth it.  In fact, an investor looking to move to bond funds should probably purchase several different funds to achieve even more diversification than just one fund would provide.

In a future blog entry, I will address the various types of bond funds and how to select the right fund based on your situation.  I also have a new e Book coming soon titled 7 Strategies For Income Investing.

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James L. Paris
Editor-In-Chief ChristianMoney.com 
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