Bond funds vs individual bonds

See this article by some dude in Boston.

I disagree with almost everything he says. Basically, he says “When interest rates rise, current bond prices fall. But If you hold the bond directly (not in a mutual fund), then the price doesn’t drop, because you can simply wait until maturity and sell it at par. But If it’s in a mutual fund, then the value of the fund drops.”

What am I missing?

Maybe you’re missing the fact that he studied with Sara Grillo.

I think that you’re mischaracterizing what he said. He said that when interest rates rise the par value of the bond doesn’t change, but what investors are willing to pay for it decreases. Both true. I think that the problem is that he doesn’t realize that when you say that what investors are willing to pay for an asset decreases, the price (value) of that asset decreases.

I think that you don’t like him simply because he played football for Nebraska. (As good a reason as any, I suppose.)

In any case, I’m glad that he’s not managing my portfolio. He’s not as bad as the representative from Fidelity who held a workshop at UC Irvine several years ago (maybe I’ll tell you about that another time), but he clearly doesn’t understand what he’s doing.

Why can’t a short duration bond fund still keep 20% cash?

I’m not sure about what he’s writing either. Most bond managers I speak with are posting only 6-7% losses for the year - they all have MF’s too.

JPST is only -.71% on the year, and his thesis is poorly supported… if at all.

No, what I mean is….the NAV of the fund is simply the weighted average price of all the underlying holdings. This is true by definition.

But I’ve heard more than one (otherwise intelligent) person say this. “If you hold an individual bond, then it’s worth its par value, because you know you’re going to hold it to maturity. But if you hold a bond FUND, then it’s only worth its current price, because it’s held inside a fund and they can sell it at any time.”

I’m calling baloney on this one. If a bond is worth 90, then it’s worth 90 whether it’s individual or in a fund. There is no “add back because we intend to hold it to maturity” factor. The price is the price.

Why would multiple (otherwise intelligent people) say this? What am I missing?

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And to think about all the time I wasted learning about the time value of money. :upside_down_face:

Well, Larry Swedroe chimed in and said the same thing: “First principle, you don’t change the value/nature of the bond you hold if you hold it individually or in a fund. This whole article is just simply wrong, no other way to say it.” I feel better now, knowing that one of the industry’s foremost thought leaders agrees with me.

But it still makes me wonder–why do a lot of (otherwise intelligent) people believe that? “Individual bonds are good. A bond mutual fund is bad.”

Um . . . I agreed with you.

Because Mexico is going to pay for the wall.

I suspect risk aversion. When there is price impairment in a stock, there is no guarantee of getting your funds back. With a bond, there is no guarantee either but the odds much higher if the impairment is due to interest rates alone. I’ve always interpreted it as explaining how there is limited downside, excluding opportunity cost.

is everyone still chilling with cash in their HYSA? bought some treasuries recently 3/6 month rates were nice