Freedom56
Thinks s/he gets paid by the post
In an environment of rising interest rates like in 2022, bond funds can lose money. There is risk there. Buying an individual bond eliminates that risk because you know exactly what you are going to get if you hold it to maturity. When holding an individual bond and interest rates go up, there is an opportunity cost for holding that bond because you are missing out on potentially higher returns but you still get your principal back. Another thing is that you can actually lose money in a bond fund if its management decides to sell out some of its bonds for cheap if they aren't doing well..
When you ease into a ladder with shorter duration notes (1-5 years) with a focus on 2-3 years as rates rise, you lessen the risk of opportunity cost. As coupon payments come in quarterly or semi-annually you re-invest at higher yields. The big advantage you have over a fund is you can strategically time your purchases and adapt your duration to the yield curve and market conditions. There is no rush to be 100% invested especially given that money market funds yield more than short duration bond funds. Furthermore as I stated early in the year, tax loss selling season creates some of the best opportunities. But looking at the big picture, those started buying bonds this year are buying high grade notes at 4.5%, then 5%, and now 6%+ are much better off than a fund that is holding a .38% treasury through 2026. The average coupon of a short duration ladder this year will be over 5% with high grade notes versus 2.2% average coupon for most short duration funds. You will be earning more than double the income with capital protection that a fund cannot offer. If rates continue to rise, you continue to compound at higher yields. If rates begin to fall, a portfolio with an average coupon of over 5% will outperform one with and average coupon of 2.2%. This is all simple math.