Bonds vs. Bond Funds: How Higher Rates Are Changing the Calculation

The new era of higher interest rates has reignited a long-smoldering Wall Street debate: Is it better for ordinary investors to buy individual bonds outright?.

During the yearslong period of near-zero interest rates, the answer seemed simple: Funds had low fees and were easy to buy and sell, and share values rose alongside bond prices..

Consider how an investor who put $10,000 in California municipal bond mutual funds in March 2022 would fare relative to someone who bought $10,000 worth of one-year California state bonds on sale that month with a yield of 0.94%..

Investors can also choose between funds geared toward bonds maturing in just a few years and those with further off payouts and generally higher interest rates..

Investors in debt sold by state and local governmentswhether in bonds or fundsearn interest exempt from federal income taxes..

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