This is overblown, because there are cases where you do want bond funds and bond ETFs. Was just reading this article today [1], which presents some of their benefits.
- More convenient than individual bonds.
- Can't estimate future liabilities perfectly and therefore won't be able to perfectly duration match using individual bonds.
- If we hit a recession and interest rates drop, you'll get a nice price bump from your bond funds when your stocks are dropping.
That being said, I do agree that the dangers and risk of bond funds and ETFs don't get talked about often enough, and that you should know what you're doing before buying them. If you have a short-term need for the money (e.g. need 100k for downpayment in 12 months' time), you should not buy a bond fund with a duration longer than 12 months. That is when you will hit the danger parent brought up where you will get a NAV drop and won't have enough money at the end of 12 months to meet your liabilities. In that case, you should really duration match [2] with individual bond that matures in 12 months.
- More convenient than individual bonds.
- Can't estimate future liabilities perfectly and therefore won't be able to perfectly duration match using individual bonds.
- If we hit a recession and interest rates drop, you'll get a nice price bump from your bond funds when your stocks are dropping.
That being said, I do agree that the dangers and risk of bond funds and ETFs don't get talked about often enough, and that you should know what you're doing before buying them. If you have a short-term need for the money (e.g. need 100k for downpayment in 12 months' time), you should not buy a bond fund with a duration longer than 12 months. That is when you will hit the danger parent brought up where you will get a NAV drop and won't have enough money at the end of 12 months to meet your liabilities. In that case, you should really duration match [2] with individual bond that matures in 12 months.
[1] https://occaminvesting.co.uk/against-duration-matching/
[2] https://occaminvesting.co.uk/duration-matching-an-introducti...