two major types of risks are associated with bond investing, credit risk
and interest rate risk. When the borrower defaults, investors lose their
principal. This is credit risk. When interest rate rises, bond prices go
down. This is interest rate risk.
If one holds an individual bond to its maturity and get repaid principal in
full amount, then the interest risk is non-exsitent. problem is the bond
issuer may go bust and default its debt. Such credit risk is always
associated with individual bond investors. Bond funds hold a variety of
bonds. Such diversification reduces risk in general, particularly credit
risk. However, bond funds do not have such a thing as maturity. Their prices
fluctuate with interest rate all the time. For small investors, I think
bond funds are better choices.