2025-12-082025-11-13

Concerns about bond funds

Bond funds are fantastic for long-term investors.

With one click, you can invest in hundreds or thousands of different bonds issued by companies or governments.

It’s a great way to reduce the risk of your stock portfolio.

But I keep hearing this concern from my students:

“Aren’t individual bonds safer? What if the fund price falls just when I need my money?”

It’s a fair concern.

I would argue that bond funds are safer than individual bonds because of diversification.

But there is the following problem:

When you buy an individual bond that matures in 2028, you know exactly when you’re getting your money back.

Even if interest rates change and bond prices swing around, you don’t worry.

Because in 2028, you get your full investment back.

The fund never matures.

So as interest rates move, your bond fund price can fluctuate.

And if you need your money at the wrong time, you might have to sell at a loss.

This is especially problematic if you’re saving for a specific goal with a specific timeline.

Like a house down payment in 2028.

Or your kids’ university fees in 2030.

There are now expiring bond ETFs available which have set maturity dates (after which the ETF repays you and closes down).

You can buy an iShares iBonds ETF that matures in 2028 or 2029.

Similarly, Xtrackers has a “Target Maturity” range of ETFs.

You get the diversification and convenience of a fund.

But with the predictability of individual bonds.

So if traditional bond fund risk has you worried…

Check these out!

Make sure you understand basics like yield to maturity, duration, interest rate risk, and credit risk before you start.

For the easiest way to learn these concepts, check out the Index Masterclass – my training program for beginning European investors.

I help busy Europeans become confident passive investors through a practical, step-by-step training program called The Index Masterclass.

Click here to access my free training for European investors.