By Stephen L. Thomas | October 23, 2023 | In
Bonds and bond funds are both investment vehicles that provide investors with a way to earn income from fixed income securities. However, there are important differences between the two that investors should understand before making investment decisions. Bonds are individual debt securities issued by companies, governments, or other entities. When an investor purchases a bond, they are essentially lending money to the issuer in exchange for a fixed rate of interest over a set period of time. At the end of the bond’s term, the investor is repaid the full principal amount of the bond. Bond funds, on the other hand, are mutual funds or exchange-traded funds (ETFs) that invest in a portfolio of bonds. When an investor purchases shares of a bond fund, they are essentially buying a piece of a diversified portfolio of bonds. Bond funds can provide investors with exposure to a range of bond types and maturities, which can help to diversify their fixed income investments. One key difference between bonds and bond funds is liquidity. Bonds are generally less liquid than bond funds, as they are individual securities that may