Individual Bonds vs' Bond Funds

1
Individual Bonds vs. Bond Funds

• Pat Warren, CFA
• Client Advisor
• Matthew Ison
• Client Advisor
• Wealth Management Advisors, Inc.

2
What is a Bond?

• Promise to pay
• Interest payments
• Typically held to maturity

3
What is a Bond?

• Federal Government
• Corporate
• Agency
• TIPS
• Municipal

4
What is a Bond?

• Many individual investors view bonds as a safe
  way to earn income
• Bonds also offer the potential for price
  appreciation like a stock
• Safety is a relative term as many risks exist for
  bond investors

5
Bond Risks

• Interest Rate Risk

6
Interest Rate Risk
7
Bond Risks

• Interest Rate Risk
• Credit (Default) Risk

8
Credit (Default) Risk
9
Bond Risks

• Interest Rate Risk
• Credit (Default) Risk
• Liquidity

10
Liquidity

• High Common stocks, U.S. Treasury bonds
• Medium Mortgage backed securities, Convertible
  bonds
• Low Real Estate, Collectibles

11
Bond Risks

• Interest Rate Risk
• Credit (Default) Risk
• Liquidity
• Reinvestment Risk

12
Reinvestment Risk
13
Individual Bonds vs. Bond Funds

• For Individual Bonds -
• Typically require a large initial investment
• Can be difficult to achieve proper
  diversification
• Analysis of individual bonds is challenging

14
Individual Bonds vs. Bond Funds

• Bond Funds offer -
• Diversification
• Professional Management
• Ease of Bond Portfolio Management
• More Efficient Pricing

15
Conclusion

• Bonds are considered safe due to the promise to
  pay
• There are many risks to consider when investing
  in bonds
• Bond funds make sense for the majority of
  investors