NEW YORK (AP) -- When it comes to the fixed-income piece of your portfolio, you need to ask yourself whether bond funds or individual bonds make more sense.

After years of saving, that's a question many baby boomers now face after amassing sizable nest eggs that now need to be preserved and transformed into a paycheck of sorts. Ultimately, the amount you have to invest in fixed income and your investment goals will determine which will better suit you.

Individual bonds embody true fixed-income investing: They provide a predictable stream of income for a set period. Hold on to them until maturity and you'll get your principal back -- as long as the issuer doesn't go kaput in the meantime. After all, even tried-and-true companies like Ford Motor Co. and General Motors Corp. can hit road bumps: Both had their credit ratings cut to junk-bond status in May.

Bond funds, on the other hand, aren't necessarily true fixed-income investments. That's because they don't have a specific maturity date -- though many aim for an "average" maturity -- so you risk losing your principal, for instance, if interest rates rise, causing bond prices to fall. And while individual bonds become less risky as they approach maturity, funds are always subject to rate risk. Funds do, however, provide instant diversification, less credit risk, as well as easy, automatic reinvestment of income. It's also easier to simply pull your money out, often at no cost, if you need to.

So which is better? The sum you have to invest will play a significant role. As a very general rule of thumb, several advisers say you need at least $100,000 to assemble a portfolio of individual issues, though some advisers say you can do it with as little as $50,000, particularly if you're a fan of Treasury bonds -- backed by the U.S. government -- since there's virtually no credit risk there. Keep in mind, though, that you'll need to diversify across maturities and duration (a measure of a bond price's sensitivity to a change in interest rates, measured in years).

Investment goals also come into play. Do you need a specific level of income and plan to buy and hold? Do you have a sizable lump sum you want to preserve for your children's college fund? If that's the case, and you can afford a well-diversified portfolio, individual issues might be for you. However, if you were planning on reinvesting your coupon payments, you'll need to do so on your own. That also can be hard since individual payments might not be large enough to purchase another bond.

Costs, of course, also need to be considered. When building your own portfolio, the cost of buying (and selling) are baked into the bond's price. Aside from selling costs, bonds don't have any ongoing fees as there are with bond funds. Annual expense ratios can range from 0.54 percent for the average index bond fund to 1.12 percent for the average actively managed fund, according to Morningstar. Barclays Global Investors offers six bond exchange-traded funds, which track bond indexes but trade like stocks, and have low expense ratios of 0.15 percent and 0.20 percent.

Buying bonds on the secondary market -- where already issued bonds trade -- can be difficult for individuals because they don't trade in large enough blocks to secure good prices. Bid-ask spreads tend to be wider than when trading stocks.

"Because the bond market is a much grayer area than the stock market, you can have the same bond that trades dramatically different between dealers," says Rick Vollaro, a fixed-income analyst at Pinnacle Advisory Group, a wealth-advisery firm in Columbia, Md. The exception is Treasurys, which have one of the largest, most liquid markets in the world, he added.

That's why it's important do some comparison shopping, and, if you're using an adviser or broker, be sure they have access or contacts in the specific market you're interested in, whether it's corporates or municipals.

There are ways for smaller investors to gain access to direct offers, which are much easier to navigate since you're buying new bonds at their face value. Treasury securities are available through the Treasury Direct program at treasurydirect.gov, while three other programs offer corporate bonds, called retail notes, purchasable in $1,000 increments with maturities typically ranging from nine months to 30 years. ABN Amro's LaSalle Broker Dealer Services offers Direct Access Notes across 11 issuers, at directnotes.com. Incapital LLC, of Chicago, offers InterNotes for nine active issuers through internotes.com, while Merrill Lynch & Co. offers CoreNotes, which can be found at corenotes.ml.com.