Malaysia Unit Trust Investors.

As part of a diversified investment portfolio, they offer a safety net in times of a bear market. Bonds also appeal to those who require a regular income from their investments.

Unfortunately, while online stock brokers have made stock investing child’s play over the last 10 years, bond investing has been slow to catch up. In fact, on many online broker sites, online bond platforms don’t even exist. That’s made the world of individual bond investing pretty murky.

You know that a certain percentage of your portfolio should be allocated to bonds (say 40% if you’re in your 40s), but you’ve probably relied on bond mutual funds to do that. And that’s not a bad thing: Bond mutual funds let you own bonds from hundreds of companies with only a small investment.

They also have professional managers who can do research into bond investments for you. But bond funds also have one, significant disadvantage to owning individual bonds.

When you buy a bond, you know: exactly what your interest payments will be, when you’ll get them, and when you’ll get your initial investment back as long as the company doesn’t default.

The prices of bond funds, on the other hand, move up and down just like any other mutual fund. If you need your money on a specific date, you’ll have no idea what your mutual fund will be worth. That can make investing in individual bonds preferable for people who need a specific amount of money at a specific time.

For example, you might need to make a $40,000 tuition payment for your college-bound 16-year old in exactly two years. Invest $40,000 in two-year individual bonds, and you’ll have that money back when you need it (as long as the company doesn’t go bankrupt).

But invest it in a bond mutual fund, and who knows what it’ll be worth when it’s time to withdraw? Although bond funds typically don’t go down by large percentages, 2008 taught us that that isn’t always the case.

If you are saving for a time-sensitive goal (or need a stream of retirement income) and think you might be a candidate for investing in individual bonds, here’s a primer on how they work.