Yes, there can be. However, speaking as someone who owns individual TIPS issues, owning individual bonds is a royal PITA, and as others have noted you would be worried about default risk unless you owned very high quality issues and/or Treasuries. I don't recommend it. I think it is most appropriate for reasonably wealthy--"high net worth"--individuals, who can easily afford to buy many different issues of bonds, buying at least $10,000 of every issue--and who have someone to manage their portfolio for them.
The reason I say there can be is this. An individual bond has a characteristic that makes it completely different from a stock, which is the fact that it has known value at one specific known future date, the date of maturity. You buy, say, a 10-year Treasury for about $1,000, and the day it matures it pays you back the $1,000 (plus the final interest payment). You can't make an "early withdrawal" from a bond--the whole reason the issuer issued the bond was to have the full use of your $1,000 for the full ten years. If you need money from a bond before maturity, the only way you can get money from a bond is to sell it on the market, where it is subject to fluctuations in value.
With a stock, the only way to get money from it is to sell it on the market, period. With a bond, however, you do not need to expose yourself to the market--you can just let the bond mature. Furthermore, since the bond is known by everyone to pay $1,000 on (say) March 15th, 2023, obviously the market value of that bond must be very close to $1,000 the day before maturity. The market value of a bond is anchored at both ends and fluctuates at the middle.
Does this matter? Whether it matters or not depends on your plans for the individual bond and whether you can carry out those plans. If you regard bonds as just an amorphous blob of assets that you buy and sell as needed, e.g. to rebalance, then you will often be buying or selling them on the market and experiencing the fluctuation. However, if you have a plan which involves mostly letting the bonds mature, you do not experience market fluctuation. This is called "matching assets with liabilities." A clear example would be, say, a manager of a pension that pays fixed-dollar amounts. The manager knows that he will need to pay Bob Cratchit $1,000 in January 2023, $1,000 in February 2023, $1,000 in March 2023, etc. So he buys bonds that mature on those dates and pay out $1,000 on each of them, and then he's set. Nothing the market does will affect his ability to make those payments.
You will see from this that individual bonds make the most sense in terms of liability matching, i.e. building a bond ladder to provide retirement income, as opposed to accumulating a nest egg.
Liability matching? An advantage to individual bonds. No liability matching, just buying and selling at arbitrary times? An advantage to mutual funds, particularly convenience and diversification.
A bond fund is a collection of bonds that mature at different times, so when you buy or sell it, you are always experiencing market fluctuations.
(There is an ideology thing that may come up. You will have to decide for yourself how you feel about it. Like all ideologies, the people on each side insist that there is no room for argument and that their side is objectively correct. It revolves around this question: does the market value of an asset matter if you have no intention of buying it or selling it? In the example above, suppose that the pension manager discovers that the bond he bought to meet Bob Cratchit's $1,000 monthly payment in February, 2023 has a market value today of $500? Assuming that the bond does not default and will meet the payment as planned, exactly what significance does the $500 value have?)
Last edited by nisiprius
on Mon Mar 25, 2013 6:32 am, edited 1 time in total.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.