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Bonds vs. bond funds: Which is better?

Well, the pros of bond funds are the same as for stock funds. Namely, you get professional research and management, and you get lots of diversification for your dollar. You can also reinvest bond payouts automatically - something you can't do with individual bonds. Lastly, it's easier to sell shares of bond funds than individual bonds.

The biggest drawback to bond funds is that they don't have a fixed maturity, so neither your principal nor your income is as certain as it would be with individual bonds. Fund managers are constantly buying and selling bonds in their portfolios. That means your interest payments will vary, as will the fund's share price.

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