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As most investment advisors
will tell you, some portion of your portfolio should be in bonds. Investing
in bonds generally provide a high degree of safety with regular,
predictable, scheduled payments over the life of the security. Now that you
understand how to read the bond tables in the newspaper and in other media,
you?ll have a strong base to begin discussing your bond investment needs
with your broker.
What makes bonds so useful
alongside stocks is that bonds not only provide steady interest income but
also can appreciate in value - and often do so when stocks are falling. In
part that's because the steady income they generate makes them more valuable
to investors at times of crisis. A money-market account (or a money-market
mutual fund) doesn't offer the chance for capital gains.
And like all good things, high money-market pay-outs will come to an end
soon, thanks to the Federal Reserve's recent reduction of a key short-term
rate. The best strategy, advises Richard Ferri, author of All About Asset
Allocation, is to stick with intermediate-term bond funds. They offer better
diversification, and today's rates notwithstanding, they historically yield
1.5 percentage points more than money funds.
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