This week’s theme is investing in bonds.

Bonds will likely be a critical component of your investment portfolio in retirement, so this week I’m sharing with you what I’ve learned from working with clients over the last 11 years, and trading upwards of $100 million dollars worth of bonds over that time.

Today, let’s try to shed light on an important debate: Individual bonds vs. bond funds.

Individual bonds are bonds you own from a single entity - like a CD bought from a bank, a corporate bond issued from a single company, or a municipal bond issued from a specific city, county, or state.

Bond funds, on the other hand, are a basket of bonds. So if you buy a municipal bond fund, you might own hundreds of different bonds all with different maturity dates, from a wide variety of municipalities. All in that one bond fund.

Bond funds provide more diversification than owning individual bonds, which is their greatest perk. But bond funds have some downside too. Unlike their individual bond cousins, bond funds have no maturity date, which means you could be underwater for years if the bond fund drops in value, with no specific date when you can expect to get your money back.

The income from bond funds is also variable, not fixed like individual bonds, so there is more uncertainty about what you will actually collect from the bond fund in terms of income.

And lastly, bond funds have ongoing fees, so they are usually more expensive to own over the long-haul.

There is no one best way to invest in bonds, but it is important to understand the trade-offs between individual bonds and bond funds when managing your portfolio.

That’s it for today. Tomorrow, we’re going to recap the week and I’m going to give you a little preview of next week’s theme.

My name is Ashley Micciche and this is the One Minute Retirement Tip.

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