I'm glad we have someone of your advanced intelligence to straighten us out when people of much higher credentials try to take us a different direction. Don't be baffled when people have a different opinion than yourself. Were you in US treasuries before 2019 when they were paying 1.4% interest? I think it is fine to give a different opinion, but calling people morons is not a recipe for a good exchange of ideas.
VW
You're welcome VW... I'm glad to straighten you out anytime. Glad to help.
I didn't realize that piece was written by Jonathan Clements... I just read your OP. As a regular reader of the WSJ over the years I have always enjoyed Jonathan Clements. I didn't realize that he was the author since I hadn't opened the link. So I withdraw my moron comment... he's not a moron... but the paragraph that you posted was stupid. In fact, the whole article was pretty bad.
I have no problem with a different opinion... I just object to mis-informed opinions.
At this time in 2019 most of my fixed income was in 3% PenFed 5-year CDs (remember those?) and target-maturity bond funds due to a concern about interest rate risk (albeit a few years early)... no 1.4% US Treasuries... sorry. I gravitate to where the returns are.
Clements disses ibonds too... I got in while the getting was good and then got out and did very well compared to what was avaiable at the time.
... Individual bonds can be treacherous to sell if you need to unload them before maturity, plus they represent an undiversified bet and you can’t easily reinvest your interest payments, like you can with a mutual fund. What if the issuer doesn’t go bust and you hold to maturity? While the nominal return on conventional, fixed-rate bonds may be known with some precision, your after-inflation, after-tax return is up in the air, just as it is with a CD. Given all that, I’m baffled that investors prefer the illusory safety of individual bonds held to maturity to the much greater safety offered by bond mutual funds. ...
I'm not sure what he means by "treacherous to sell" but presume that he means hard to sell or that you don't get good pricing. To begin with, why in the world presume that there will be a "need to unoad them before maturity" to begin with? Most of us plan better than that so the whole premise is silly. I have never NEEDED to sell before maturity. But if you do need to sell and own Treasuries then they are so widely traded it is easy-peasy... not treacherous at all.
What is the "undiversified bet"?... sounds like credit risk to me. With US Treasuries there is no need for diversification since they are credit risk free. If he is refering to corporate bonds, it is easy to diversify credit risk by sticking to investment grade issuers and limiting your investment in any single credit.
While he is correct that you can't reinvest interest
as easily as in a bond fund, you can
easily reinvest interest payments. Less than 5 clicks once I am logged into Schwab.
While it is true that the after-inflation, after-tax return is up in the air, it is not any less up in the air for any other investment class so how is it relevant? Sounds intelligent at first blush but makes no sense.
Finally, he says that bond funds are much safer than individual bonds. How is that? Especially when the bond fund invests in individual bonds? A silly statement by him. We've had lots of debates here by knowledgable investors about bond funds compared to individual bonds and I can't recall a single suggestion that bond funds are "much safer". I don't see how and he doesn't explain why... he just states it and expects us to accept it because, after all, it is Jonathan Clements writing. Poppycock.
Lastly, while I can find a lot of background on him and what he has done his credentials may not be higher than mine, he has just published a lot more.