Municipal Bond Forum
Individual bonds vs. bond funds
Q
As a rank amateur, I’m trying to decide whether to take my money out of the Vanguard high-yield tax-exempt bond fund and buy a bunch of individual municipal bonds as a ladder for the next five years. According to my interpretation of your writings, perhaps I should just stay put. Any comments?
A
James A. Klotz responds:
Individual bonds are always our preference over bond funds when an investor has the financial wherewithal to provide himself adequate diversification.
Individual bonds, as opposed to bond funds, have stated maturity dates.
We do, however, believe in owning longer-term securities to maximize tax-free income, which is the reason municipal bonds are purchased in the first place. Although longer bonds experience greater volatility, and will sometimes be worth more than you paid for them and sometimes less, they are purchased for the long haul.
The most successful bond investors are those who buy bonds when their investable dollars are available, rather than trying to time the market, which is invariably a fruitless endeavor.
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