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Bonds are always safe
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Bonds are always safe

Bonds can sometimes be thought of as the frumpier side of an investing portfolio, "steady-Eddies" that won't deliver much return or pose much risk to principal.

Of course, the term does include products that span the gamut from U.S. Treasury securities to below-investment-grade corporate debt instruments, otherwise known as junk bonds.

"There is a difference between Vanguard high-yield corporate bond fund, where their average rating is double-B, and buying TIPS (Treasury Inflation-Protected Securities)," says Laura.

Bankrate's Investing Basics offers information about some different types of bonds.

Beyond credit rating, the maturity can be a risk as well. Long-term bonds are particularly vulnerable in a rising-rate environment, which drives prices of existing bonds down. If you're invested in a bond fund, you could lose principal if interest rates go up.

"One-year CDs are averaging yields of 1 percent or less. So people are going into bond funds not realizing that inverse relationship between price and yield in a potentially rising interest rate environment. Next couple years out, it's going to cost them principal," says Laura.


 

 

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