Tips from HopwoodTreasuries -- "Part of why rates are so low is because the government wants to get people to take some risk. I'm looking at a Treasury fund that's yielding 0.01 percent, and that's crazy. You won't have to pay any taxes because you're not earning anything, but you're getting behind the eight-ball with inflation, and I think that's a real problem," says Hopwood.
Corporate bonds -- "The yields aren't as great as they were, but we've bought a lot of corporate bonds over the last six months. We weren't buying any corporate bonds prior to that for about three years because we weren't getting compensated to take the credit risk. We only buy investment-grade (bonds) and we diversify by how much we have in any one name. We're going to put 1 (percent) to 2 percent at the most in any one name.
"We bought a Berkshire Hathaway bond within the last two weeks with a yield of 4.2 percent going out to 2012. We bought a Medtronic bond at 4.5 percent going out to 2014, and then a Pfizer bond last week with a yield of about 5 percent. I think we're getting compensated for the risk," he says.
Junk bonds -- "I know there's a group that feels that's a great place to be, but I'd caution people on it. I think the markets are pretty efficient. There's a reason you get such a high yield on junk bonds."
Municipal bonds -- "We're buying a little in the 'muni' market. We were buying more before, but yields have come down quite a bit there. Just as in real estate -- location, location, location -- know what you're buying when it comes to bonds. We're not buying a lot of revenue bonds unless we know the municipality very well," says Hopwood.
"General obligation bonds are usually a lot safer than revenue bonds, but there are different degrees of safety. California had an issue a couple weeks ago, a general obligation bond with a 25-year maturity with a 6-percent yield. The market is telling you there are some issues out there. My fear is some people are chasing their tail. Apparently, a lot of the investors were retail investors who took money out of the stock market and put it into California munis. That's fine for a small part of your portfolio, but don't load up because California does have issues.
"Yields today for very high-quality munis are around 3 percent for going out seven years."
Preferred stock -- "Generally, we don't buy them," says Hopwood. "They're for what I call a yield junkie in many cases. The majority of preferreds have a very long maturity, if not perpetual. If there's a problem, there's no maturity to protect you or it's so far out that you may as well not have a maturity. You can get 14 percent for Bank of America, but you may have the same problem you had with Citigroup -- they convert you to common shares."
Bond funds -- "We do not buy bond funds because there is no maturity. We own individual corporate bonds. Last year, many corporate bond funds were down 7 (percent) to 20 percent. I don't have that problem. My bonds go down in value, but as long as they don't default, I'm getting my principal back plus income."
If you feel that individual bonds are too expensive, see if your brokerage has the Corporate Notes program. This allows retail customers to buy corporate bonds at a par of $1,000 each. The bonds are issued weekly and, typically, are available for purchase for five business days. Here's an example of what you'd find at Fidelity.
Of course, if you'd prefer to not commit to any longer-term investment you can get some, relatively speaking, decent yields on CDs. You can lock in a six-month yield between 2 percent and 2.25 percent at several banks.