Converse are to Mizunos as Bond Funds are to Bonds

At some point Converse sneakers were considered acceptible athletic wear for actually playing sports. Since then, the sneakers have morphed into comfotable gear to thrown on for a walk on a Saturday as opposed to a work out. Instead, through some genious engineering, we now have sneakers like Mizuno to break a sweat in. It's almost laughable at this point to picture someone participating in any athletic even while wearing their favorite Chuck Taylors. We simply know better now. Some sneaks are for strolling while some are for really workin' it.


When it comes to investing our money, we never actually want to be strolling because let's be real, we work hard for our money and our money should be workin' it hard for us! Basically Converse which in this case can be thought of as bond funds aren't the best way to get some muscle outta your money.


When you buy a bond fund, it is comprised of a bunch of different bonds. The broker presenting this fund rarely knows what the specific underlying bonds are in the fund so basically has no idea what he or she is putting your money into. When you buy an individual bond, you know exactly what is paying your interest and how. Bond funds also do not have a specific maturity date (day you get your principal back). This means that when you put your money in a 7 year bond fund, 5 years later you still own a 7 year fund. When you put your money in a 7 year individual bond, 5 years later you have a 2 year bond. If you need to sell, an individual bond is much better because a 2 year bond that has the same quality as a 7 year bond is always more expensive. This is due to duration risk. The longer the bond, the more time there is for something to possibly go wrong with it. Costs are a third consideration. Generally when you buy a bond fund, you end up paying a fee on it every year which really eats into your profit. When you buy an individual bond you pay the ask price while the broker selling it to you paid the bid price the spread is the only profit in it for the broker. Being a bond salesperson, if I thought bond funds were good investments, I would most certainly sell them because they are incredibly profitable (for the broker) and there's not much I love more than a new pair of running sneaks! The problem here is that when investing your money, you want it to be most profitable for you, not your broker or brokerage house.

Moral of the story is while it was fine to excersize in Converse when we didn't know any better, now that we know about more supportive shoes, our ankles and toes love us more. The same goes for bond funds, now you know better, so get your money into some stable sneaks (bonds)!