Investing in Individual Bonds

An investor may purchase individual bonds for a number of reasons. First, the
investor may have great confidence in the ability of the bond issuer to make all
interest payments as promised and to repay the principal in full upon maturity.
By holding individual bonds, the investor chooses when to buy or sell thus
retaining control over the timing of any taxable capital gains or losses.
Moreover, the investor does not pay any fees for professional management or
recordkeeping and so is able to receive all the income produced by the
bonds before any applicable taxes. Finally, the investor may want assurance
that the value of the investment will be paid in full on a certain date so that 
it can be targeted to pay for an expected cost such as a college tuition bill.
Because a bond's interest rate is known, an investor can predict the value of 
the investment at maturity. Consider a $1,000 bond that pays 5% interest and 
will mature in 1 year. If the bond is purchased today for $1,000, the investor
receives $50 in interest and $1,000 in principal in the next year for a total
value of $1,050.

Investors should keep in mind that they must pay brokerage commissions when they 
buy and sell individual bonds. One exception is that investors may purchase U.S. 
Treasury securities without paying commissions through the Treasury Direct program 
of the Federal Reserve System.
