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As an individual investor I have been investing the percentage of my portfolio dedicated to bonds in either bond ETF's or mutual funds, but I'm concerned this may not produce the price stability and income that it's meant to produce. Here is why: When you invest in individual bonds, if you hold the bond to maturity you are guaranteed to get the principle back and the given interest rate. However if I buy a bond fund my principle is not safe and the price will drop in a rising interest rate environment no matter how long I hold on to the shares since there is no maturity date. Also the interest rate will fluctuate. So I lose the balancing aspect of bonds as diversification to stocks because the price of both will drop with an interest rate increase. So my question is: Is this difference between individual bonds and bond mutual funds significant enough to warrant my attention? and how can an individual investor buy single bonds without paying huge premiums?
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