Skip to Content
Rekenthaler Report

3 Reasons to Own Bonds Directly

And three reasons to choose bond funds instead.

Mentioned:

Bond Reason #1: Price
Buying bonds directly costs less than owning actively managed bond funds. Forget the broker’s transaction fee, which, as with stock-trading commissions, has shrunk to almost nothing. The meaningful expenditure comes not from that official charge, but instead from the unstated difference between what the broker paid for the bond and what it charges for its sale. The broker’s profit margin averages about 1% for high-grade corporate bonds.

That amount is roughly double an actively run bond fund’s expense ratio, which runs about 0.50% for the institutional share classes that are currently popular. However, as the bond fund’s expense ratio is levied annually, while the markup on the individual bond is paid only at the time of sale, owning the fund for a decade costs a cumulative 5%, as opposed to 1% for 10-year bonds that are retained until their maturity date.

John Rekenthaler has a position in the following securities mentioned above: PTTRX. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.