(James Saft is a Reuters columnist. The opinions expressed are his own.)
By James Saft
(Reuters) – Some day, perhaps soon, interest rates are going to start to go up decisively.
And on that day, when it comes, some investment advisors are going to stroke their chins and spout nonsense to the effect that you are better off in individual bonds rather than bond funds.
This fallacy, maybe one of the oldest and hardest investment misconceptions to stamp out, hinges on the idea that owners of bonds are not forced to take losses because they can hold their securities to maturity.
Personal finance writer Suze Orman, for example, has stated the case ( here ), equating that right to get your principal investment back with carrying a lower risk.
While it is certainly true, barring default, that you will get your initial investment back from a bond, while a bond fund will price every day, this is not, per se, an advantage.