There are 2 ways to read your question. 1) What's the case for small investors to buy bonds, whether by buying them directly or via a bond fund? In this case,

There are 2 ways to read your question. 1) What's the case for small investors to buy bonds, whether by buying them directly or via a bond fund? In this case, I recommend reading up on Modern Portfolio Theory and Asset Allocation or, if you just want practical information, just get a basic book like the Bogleheads guide. Basically, since stocks are risky, investors typically hold a combination of bonds and stocks. Also, because the returns for bonds and stocks are (somewhat) uncorrelated, a portfolio with a mix of bonds and stocks can have better returns with less risk (variance) than a 100% stock portfolio. Assuming your bond and stock holdings are diversified (e.g. you buy and hold index funds), the main long-term investing decision you have to make is the % you allocate to bonds and stocks. 2) What's the case for small investors to buy individual bonds instead of just investing in a bond index fund? Well, depending on where you are, you can buy government bonds without brokerage fees, so your costs might be lower. But in that case it's harder to invest the coupons by yourself. Of course bond returns are lower, but the risk is much lower too. In the case of short-term bonds issued by most developed countries, the risk of default is extremely small. The main risk is that unexpected inflation eats your returns.