Individual bonds offer a direct path to predictable income and a known maturity date, making them attractive for investors with specific financial goals. Unlike bond funds, which fluctuate in value and have no end date, individual bonds let you hold them to maturity and receive your principal back.
The case for individual bonds strengthens when you have clear cash needs. If you know you'll need $50,000 in five years for a down payment or $100,000 in ten years for retirement, you can buy bonds maturing on those exact dates. This removes guesswork from your planning.
Treasury bonds carry zero default risk since the U.S. government backs them. A 10-year Treasury currently yields around 4.2%, while 5-year Treasuries offer roughly 4.4%. Municipal bonds appeal to high-income earners since their interest payments escape federal taxation. Corporate bonds from stable companies like Johnson & Johnson or Microsoft typically yield more than Treasuries but carry slightly higher risk.
The main drawback: if you need cash before maturity, you must sell in the secondary bond market. Bond prices fall when interest rates rise, so selling early could mean a loss. A Treasury ladder, where you buy bonds maturing in staggered years, reduces this problem by ensuring regular income regardless of market conditions.
Buying bonds requires discipline and research. You'll need a brokerage account and should understand credit ratings from agencies like Moody's or Standard & Poor's. Fees on individual bond purchases run $5 to $10 per trade at most brokers, making small purchases expensive.
Bond funds solve some problems but create others. Vanguard BND or iShares AGG offer instant diversification and lower costs but provide no maturity date and expose you to interest-rate risk. Ladder individual bonds if you have at least $25,000 to deploy and a